Based on preliminary data, the year-on-year growth of domestic liquidity (M3) slowed down to 5.3 percent in January 2002, from the 6.8 percent growth in December 2001. This slowdown in liquidity growth could be traced partly to banks’ cautious lending stance amidst the restrained credit demand from the corporate sector. The volume of outstanding loans of commercial banks was also lower by 3.6 percent in December 2001 from the level a year ago, as bank lending to most sectors registered declines.
Public sector credits continued to grow in January by 8.1 percent, tempering the impact of the 4.8 percent year-on-year decline in credits to the private sector. The still-weak global economy has restrained business expansion plans of the private sector and thus the continued low credit demand. Moreover, the presence of spare capacity in the manufacturing sector limited corporates’ need for additional credits. The average capacity utilization in December 2001 stood at 76.9 percent, almost unchanged from the November 2001 level of 76.6 percent.
The impact of the easing trend in monetary policy stance — as indicated in the series of policy rate cuts by the BSP, the latest being the 25-basis point reduction effective 15 February 2002 as well as the 4-percent cumulative reduction in liquidity reserves—is expected to continue to work its way through the economy so that a more active credit activity would come forth gradually.
Nevertheless, the strong real sector performance in the fourth quarter of 2001 signals that sustained growth is firming up for the Philippines. Recent GNP and GDP numbers showed stronger-than-expected economic performance in the fourth quarter relative to the third quarter on the back of a resilient domestic economy. Taking its cue from these developments and the string of positive news on the Philippines, the domestic stock market likewise has been generally gaining strength since the start of the year. Another advance indicator, passenger car sales, which grew by 19.2 percent year-on-year, posted its highest increase since January 2001.
These developments, together with expectations of stronger economic activity in the light of signs that both the U.S. and the Euro-zone economies are at positive turning points in their business cycles, should—sooner rather than later—encourage credit growth particularly to the private sector.
Going forward, the BSP will continue to monitor monetary and financial conditions so that appropriate and timely responses are taken to keep domestic liquidity in line with its price stability objectives and the government’s growth target