Domestic liquidity or M3 continued to slow down for the fifth consecutive month since September 2005. Domestic liquidity grew by 8.4 percent year-on-year in January to P2.302 trillion, based on data from the BSP’s Depository Corporations Survey (DCS). This was a further deceleration from the 9.6 percent year-on-year increase recorded in the previous month. However, on a month-on-month basis, M3 contracted by around 0.9 percent in January compared to a 2.3 percent growth in December 2005.
Growth in liquidity continues to be driven by strong inflows of foreign exchange from overseas Filipino workers’ (OFW) remittances. However, the observed deceleration in recent months is due mainly to the reduced net credits to the public sector as a result of the improved fiscal performance with net lending to the public sector declining by almost 17.8 percent in January.
The BSP continues to monitor the growth 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 at a pace in line with real sector activity.