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M3 Growth Accelerates Further to 7.5 Percent in August


Domestic liquidity (M3) growth accelerated to 7.5 percent as of end-August 2002—settling at P1.56 trillion—from the 7.1 percent expansion registered as of end-July 2002.  On a month-on-month basis, the end-August 2002 M3 level also grew at a faster clip of 0.2 percent from a zero percent growth in July 2002.   The acceleration in the growth of money supply can be traced partly to the improving level of net foreign assets (NFA) of the monetary system as well as the increase in the credits to the public sector.  

Larger investments in foreign currencies and foreign-currency denominated instruments by deposit money banks (DMBs) along with the sizeable US dollar remittances by overseas Filipino workers (OFWs) helped improve the level of NFA of the monetary system.  Meanwhile, increased domestic investments in fixed-income government securities by DMBs raised the growth in the level of credits to the National Government to 12.7 percent as of end-August 2002 from 7.1 percent in July 2002. 

Meanwhile, the 5.1 percent contraction in private sector credit observed in July eased to 4.3 percent in August 2002, following the slight recovery in the borrowing activities of the private sector. This was indicated by the 0.7 percent month-on-month increase in commercial banks’ (KBs) loans outstanding in July 2002 from the 2.9 month-on-month contraction registered in June 2002.  Moreover, the decline in KBs’ non-performing loan ratio in July 2002 to 17.8 percent (from 18.1 percent in June 2002) could have encouraged banks to extend new loans to creditworthy borrowers.  

The relatively stronger demand for money during the period indicated the brisker pace of economic activity in recent months.  In particular, the strong recovery of the industry sector—which grew by 4.3 percent during the second quarter from 1.3 percent in the first quarter—was reflected in the continued positive growth in the production indices of the manufacturing sector.  The volume of production index (VOPI) and the value of production index (VAPI) rose by 6.4 percent and 5.7 percent, respectively, in July 2002 from the revised growth of 2.1 percent and 0.7 percent in June 2002.    

 Going forward, the BSP will remain watchful of the domestic and external factors that affect the economy while ensuring an appropriate stance of monetary policy that will support the expansion in economic activity while keeping the general level of prices low and stable.

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