Domestic liquidity or M3 continued to slow down for the fourth consecutive month starting September 2005. In December, domestic liquidity grew by 9.6 percent year-on-year to P2.322 trillion, based on data from the BSP’s Depository Corporations Survey (DCS), a further deceleration from the 11.9 percent year-on-year increase recorded in the previous month. On a month-on-month basis, M3 expanded by almost 2.3 percent in November compared to the 1.0 percent growth in the previous month.
Growth in liquidity continues to be driven by strong inflows of foreign exchange from overseas Filipino workers’ (OFW) remittances as well as from portfolio and direct investments. The deceleration in liquidity growth may be traced mainly to lower net credits to the public sector as a result of the improved fiscal performance. Net lending to the National Government (NG) declined by 9.8 percent in December following the significant build-up of NG deposits.
The BSP will continue to monitor the level of domestic liquidity to ensure that it remains consistent with the BSP’s price stability objective. At the same time, the BSP will continue to pursue its efforts to strengthen the banking system in order to ensure that credit activity proceeds in line with real sector activity.