04 March 2003
Domestic liquidity (M3) grew by 7.7 percent year-on-year to reach P1.629 trillion as of end-January 2003. At this level, M3 grew at a faster clip compared to the 5.2 percent year-on-year growth registered in the same period a year ago. The M3 growth in January, however, slowed down, when compared to the 9.5 percent year-on-year rise in December 2002 given that the month of December has traditionally been a month of high spending. The growth in M3 in January could be traced mainly to the sustained expansion in the net foreign assets (NFA) of the monetary system—consisting of the BSP and the banking system—and the improvements in the levels of domestic credits of both the public and private sectors.
Net purchases of foreign exchange by banks and other corporates combined with the reduction in foreign liabilities of the BSP and the banking system—due to net repayments of their foreign-denominated obligations—helped beef up the NFA position of the monetary system.
Meanwhile, net domestic credits to the public sector, particularly to the National Government (NG) rose steadily by 10.0 percent year-on-year in January due to strong demand for government securities, supported by ample liquidity in the system. Credits to local governments also recorded a hefty increase of 42.9 percent in January. Likewise, credits to the private sector rose by 4.1 percent in January 2003, marking a sustained uptrend from the 1.2 percent year-on-year growth registered in the previous month and a marked improvement compared to the 5.7 year-on-year contraction posted a year ago.
The steady growth in M3 is indicative of the strengthening domestic demand as evidenced by the higher-than-expected growth of 4.6 percent in real Gross Domestic Product (GDP) in 2002. In addition, the sustained increase in bank lending—which rose by 2.4 percent in December 2002 for the fourth consecutive month—as well as the upturn in bank lending to the manufacturing sector following 17 consecutive months of year-on-year declines affirmed the modest but steady growth in domestic economic activity. These developments highlight the view that the past monetary policy easing measures of the BSP and the ensuing low-inflation and low-interest rate environment have provided support for domestic economic activity.
In the months ahead, the BSP will continue to monitor carefully the evolving macroeconomic conditions as well as the risks to price stability in order to ensure that monetary policy would continue to support the achievement of the country’s growth and inflation objectives.