Preliminary data on domestic liquidity (M3) indicated that demand for money grew by 2.6 percent year-on-year to reach P1.64 trillion as of end-October 2003. The growth in M3 slowed down from the 3.4 percent annual growth registered in the previous month. Despite the deceleration in the growth of domestic liquidity, credits to both the public and private sector continued to post positive growth rates, complementing the sustained expansion in the net foreign assets (NFA) of the monetary system.
By component, the NFA of the monetary system grew steadily by 17.4 percent from 18.1 percent year-on-year growth in the previous month. This can be traced mainly to the sustained investments in foreign-currency denominated assets by deposit money banks (DMBs) combined with a decline in their foreign liabilities. Similarly, domestic credits continued to rise in October on the strength of demand for government securities, which has been the main driver of credit growth to the public sector. However, the growth in credits to the public sector decelerated to 10.8 percent year-on-year in October from 18.7 percent rise in the previous month with the build-up in the National Government’s deposits with the BSP. This contributed to the slowdown in domestic liquidity growth.
Credits to the private sector likewise increased steadily for 11 consecutive months, rising by 2.4 percent in October from 2.6 percent annual rise a month ago. However, the growth in private sector credit continued to be modest due to the still relatively low demand for loans by the private sector. While rising steadily, the growth in bank lending remained modest at 3.9 percent as of end-September from the year-ago level as the improvement in real sector activity, particularly manufacturing, has remained uneven and tentative. 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), dipped by 3.7 percent year-on-year increase in September after rising steadily in the past two months. Meanwhile, the annual growth in the value of production index (VAPI) slowed down to 3.1 percent in September following the 11.2 percent year-on-year in the previous month. The average capacity utilization of key manufacturing firms declined slightly to 77.5 percent after rising to over 78.0 percent for four straight months since May 2003.
Going forward, the broad indicators of economic activity are expected to encourage stronger domestic demand, which would accelerate the growth in M3. Specifically, the country’s Gross Domestic Product (GDP) grew by 4.4 percent in the third quarter of 2003, an increase from its 3.8 percent growth during the same period last year and slightly higher than the government’s 3.8-4.3 percent target for 2003. In addition, the cumulative power sales by Meralco as of September 2003, a leading indicator of overall power consumption, grew by 5.1 percent year-on-year, an upturn from the decline of 0.6 percent during the same period in the previous year. Meanwhile, passenger car sales recorded a significant year-on-year growth in October 2003 at 81.9 percent, an upturn from the decline in the previous month.
In the months ahead, the BSP will continue to keep a close watch over the developments in the domestic economy in order to provide an appropriate level of liquidity supportive of the economy’s low-inflation growth target.