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.