MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has contained domestic liquidity or M3 growth last year, it expanded by 6.3 percent by the end of December, slower compared to the previous year’s 10.6 percent growth.

M3 also called broad money liabilities amounted to P4.674 trillion last year. The growth in money supply also eased compared to November’s 7.2 percent.

The central bank said the steady growth of liquidity in the financial system remains supportive of economic growth.

“The BSP is of the view that overall liquidity conditions remain appropriate to support the country’s growth requirements despite the recent slowdown in the growth of domestic liquidity. (We) will continue to ensure that monetary conditions remain supportive of economic growth to the extent that the inflation outlook would allow,” said the BSP.

The BSP’s most effective liquidity management tool was its special deposit account facility or SDAs. “While domestic credit growth remained strong on account of higher National Government, corporate and household borrowings, the BSP’s SDA operations moderated liquidity growth,” it said.

Bank funds placed with the central bank as SDAs reached P1.633 trillion at the end of December 2011, up 32 percent compared to end-2010’s P1.237 trillion.

The liquidity condition at the end of 2010 up to the first half of 2011 was considered an excess and through the SDA, the BSP was able to absorb credit or funds to prevent high inflation.

A BSP study said the SDA facility continue to be the central bank’s key monetary policy instruments especially in managing strong foreign exchange inflows. The facility became more effective in dealing with inflows when in 2007, the BSP allowed banks’ trust entities to deposit funds in the SDAs.

BSP M3 data showed that net foreign assets (NFA) growth has decelerated to 14.1 percent in December from 15.6 percent in November. The central bank’s NFA position increased 21.3 percent in December, supported by foreign exchange inflows from speculative portfolio investments and remittances. The NFA growth was slower than in November.

The NFA of banks also eased in December, said the BSP, because of the continued increase in their foreign liabilities, combined with a decline in their foreign assets. “Banks’ foreign liabilities rose due largely to higher placements made by foreign banks with local banks. Meanwhile, the fall in banks’ foreign assets was due in part to the decline in loan receivables from foreign banks,” said the BSP.

M3 or broad money liabilities include currencies, banks’ transferable deposits, other deposits, and securities other than deposit substitutes (promissory notes and commercial papers). (LCC)