Preliminary data on domestic liquidity (M3) indicated that M3 grew by 3.03 percent year-on-year to reach P1.64 trillion as of end-September 2003, slightly lower than the 3.8 percent annual growth registered in August. The sustained pace of growth in M3 can be traced mainly to improvements in the level of domestic credits to the public sector as well as the expansion in the net foreign assets (NFA) of the monetary system.
The strong demand for fixed-income government securities has been the main driver of credit growth to the public sector since July 2003. Likewise, the increased investments in foreign-currency denominated assets by deposit money banks (DMBs), along with a decline in their foreign liabilities, have fueled the expansion in the level of NFA of the monetary system over the past three months. Meanwhile, net credits to the private sector have continued to show positive growth rates over the past nine months, rising by 2.5 percent year-on-year in September. However, the September increase was lower than the 3.2 percent annual growth recorded in August.
The increase in M3 was anchored on the steady but modest pace of domestic economic activity, as reflected in the observed trend in various demand indicators. For instance, the volume of production index (VOPI) of the manufacturing firms as part of the Monthly Integrated Survey of Selected Industries (MISSI) published by the National Statistics Office (NSO), posted a 7.0 percent year-on-year increase in August, an improvement from the 4.5 percent growth in the previous month. Meanwhile, the value of production index (VAPI) continued to grow by 11.9 percent, a slight decline from the revised 13.1 percent growth in the previous month. Loans outstanding of commercial banks rose slightly for the twelfth consecutive month in August, registering a 3.8 percent annual rise from 3.7 percent in July. Similarly, power sales by Meralco, a leading indicator of overall power consumption, also grew by 6.7 percent year-on-year in August 2003 from 4.5 percent in the previous month.
On a seasonally-adjusted basis, the M3 level as of end-September was recorded at P1.66 trillion. This implies a month-on-month increase of 0.4 percent, which is slightly slower than the previous month’s rise of 0.9 percent.
In the months ahead, monetary authorities will continue to ensure an appropriate level of liquidity in the financial system that is supportive of the economy’s low-inflation growth target. The BSP will also continue to monitor closely the evolving macroeconomic conditions and price stability risks in order to anticipate any possible challenges to the inflation outlook.