The central bank reported that domestic liquidity or money supply (M3) grew by 10.2 percent in July to P3.91 trillion, slightly lower compared to June's 10.2 percent growth.

The Bangko Sentral ng Pilipinas' (BSP) Department of Economic Research (DER) has noted to the Monetary Board last week that the level of liquidity was still in line with the economy's absorptive potential this year.

The government expects gross national product (GNP) to grow by seven to eight percent in 2010 while inflation is targeted to be within the 3.5-5.5 percent range. As of the second quarter, GNP growth was at 8.2 percent from 9.5 percent in the first quarter.

BSP said M3's "sustained increase" was due to growth in net foreign assets (NFA) of 15.9 percent, however this was lower than June's NFA growth of 22.7 percent. The higher foreign exchange inflows from overseas remittances, portfolio investments, and export receipts boost NFA level. Also in July, the NFA of banks went up by 2.4 percent due to the increase in their holdings of marketable securities, said the BSP.

As for net domestic assets, the central bank said this increased by 2.8 percent "buoyed up by stronger lending to both the public and private sectors." Credits to the public sector rose by 11.4 percent in July due to a 8.8 percent expansion in credits extended to the National Government with the increase in the outstanding level of government securities in July.

BSP noted that credits to local government units and other public entities expanded by 20.6 percent as there were more loans extended, while credits to the private sector also rose by 10 percent, which was "consistent with the observed uptrend in bank lending activities as the country’s economic prospects continued to improve."

BSP Governor Amando M. Tetangco, Jr. said in a press release that the steady growth of M3 would help "ensure adequate liquidity available to support the funding requirements of firms and households, consistent with the economy’s stronger growth momentum."

In the meantime the DER in its report said monetary officials continue to be confident that M3 level was still supportive of economic growth.

The DER said that while reserve money was decreasing, mainly because of increase in banks’ overnight and term placements with the central bank such as in special deposit accounts, the latest money multiplier effect indicated that domestic liquidity or M3 growth was still within expected levels.