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Domestic Liquidity Growth Accelerates in May


Based on preliminary data, domestic liquidity (M3) grew by nearly 4.0 percent year-on-year to reach P1.6326 trillion as of end-May 2003.  At this level, the growth of M3 accelerated from the 2.5 percent year-on-year rise in April 2003.  Meanwhile, seasonally-adjusted M3 as of end-May was registered at P1.6317 trillion, 2.2 percent higher than the previous month’s level.  The   growth in M3 in May could be traced mainly to the improvements in the levels of domestic credits of both the public and private sectors and the expansion in the net foreign assets (NFA) of the monetary system (consisting of the BSP and the banking system).

Net domestic credits to the public sector grew by 13.2 percent as credits to the National Government and local government units continued to increase by 5.5 percent and 61.8 percent, respectively, in May 2003, due to strong demand for government securities, given the ample liquidity in the system.  Meanwhile, net credits to the private sector grew by 2.5 percent. Net purchases of foreign exchange by banks and other corporates combined with the reduction in their foreign liabilities—due to net repayments of their foreign-denominated obligations—also helped beef up the NFA position of the monetary system.

The  encouraging  growth  in  domestic liquidity   was accompanied by  sustained —though   still modest— improvements in  domestic demand.  Consumer spending, which  accounts  for  about  62   percent  of the  country’s Gross National Product  (GNP),  continued  to hold up well.   Personal consumption expenditures   increased  by    8.1 percent  year-on-year  in the first quarter, up from the 7.2 percent growth in the same period a year ago.   In addition,  the volume  of production index (VOPI) and value of production index (VAPI)  of key  manufacturing firms   continued to increase—although at a slower pace—by 2.0 percent and 9.0 percent year-on-year in April 2003, respectively,  from 6.4 percent and 17.4 percent in the previous month.   Moreover,   the sustained  rise in  bank credits    to finance  productive   activities    further lifted  the demand for domestic liquidity.  This  was  evidenced by the   acceleration  in the growth of  loans outstanding of commercial banks  to 3.4 percent year-on-year  as of end-May from  3.0  percent in the previous month.  This also reflected the ninth consecutive month  of  increase in bank lending activities.

In the months ahead, the BSP will continue to monitor carefully the evolving macroeconomic and external developments in order to ensure that domestic liquidity conditions remain  supportive of  economic   growth,  while keeping in check any possible risk to price stability.

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