Money floods financial system in November

Domestic liquidity continued to surge in November, but not enough to alarm the central bank about its threat to rising consumer prices. Data released by the central bank on Friday showed that domestic liquidity or M3 rose by 12 percent year on year in November to sum up to P3.8 trillion. This growth rate was lower, however, compared with 12.5 percent in October. M3, a broad measure of money circulating in the economy, consists of currency in circulation, peso savings and time deposits, and peso deposit substitutes such as promissory notes and commercial debt. The central bank closely watches domestic liquidity keep inflation at bay. Too much money chasing few goods leads to higher prices. Inflation averaged at 3.2 percent in 2009, falling within the central bank’s target of 2.5-4.5 percent. It averaged at 9.3 percent in 2008. The central bank has said price increases would stay within its target band of 3.5 percent to 5.5 percent this year amid a benign inflation environment. The M3 growth rate in November didn’t faze the central bank, which said in a statement that "the sustained growth in domestic liquidity indicates that ample funds are available to support the credit needs of firms and households." It added that it would continue to closely monitor monetary conditions to ensure an adequate level of liquidity for the economy’s spending and investment needs. The central bank flooded the financial system with liquidity through a series of moves beginning in 2008, to ensure that a credit crunch in developed economies did not extend to the Philippines. With financial markets having returned to normal since then, the central bank has started considering the withdrawal of stimulus measures, even as it promised to do this gradually. — BusinessWorld