Based on preliminary data, domestic liquidity (M3) grew by 2.8 percent year-on-year to reach P1.612 trillion as of end-April 2003. At this level, the growth of M3 decelerated from the 4.6 percent year-on-year rise in March 2003. Meanwhile, seasonally-adjusted M3 as of end-April was registered at P1.598 trillion, 1.2 percent lower than the previous month’s level.
M3 growth has been tempered in part by the one-percentage point increase in the liquidity reserve requirement for banks on 20 March 2003. This was also partly a result of the base effect this year as the year-ago reduction in the liquidity reserve requirement for banks by 2 percentage points on 18 January 2002 contributed to higher M3 levels in the first few months of 2002. Moreover, the shift of funds from peso deposits to dollar deposits, as shown by the double-digit growth in foreign currency deposits (16.1 percent) in April 2003, also contributed to the deceleration of the M3 growth.
In terms of composition, both private and public sector credits accounted for the expansion in M3 during the period. Net domestic credits to the private sector grew at a slower rate of 2.0 percent year-on-year. Meanwhile, net domestic credits to the public sector grew by 17.5 percent as credits to the National Government and local government units increased by 8.8 percent and 69.0 percent, respectively, in April 2003. The market’s strong appetite for risk-free government securities combined with ample liquidity in the financial system helped fuel demand for government credits.
The modest growth in domestic credits supported the growth in the country’s Gross Domestic Product (GDP) at 4.5 percent year-on-year for the first quarter of 2003, well within the government’s 4.0-5.0 percent GDP target for 2003. In particular, the manufacturing sector—supported by the 7.3 percent year-on-year growth in commercial bank lending as of end-March 2003—grew by 5.3 percent year-on-year during the first quarter of 2003.
Going forward, the BSP will continue to monitor carefully the evolving macroeconomic and external conditions. Monetary policy will continue to ensure an appropriate level of liquidity to sustain the economy’s growth path while keeping in check any probable risk to price stability.