Domestic liquidity (M3) — the amount of money circulating within the Philippine economy — grew by 8.6 percent year-on-year in January, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP).

In a statement, the central bank said M3 growth in December was revised upward to 7.2 percent, marking a 1.4-percentage-point increase from the previously reported figure. The BSP noted that, after adjusting for seasonal fluctuations, M3 increased by 0.8 percent month-on-month in January.

The January figure represents approximately P19.7 trillion, which includes currency in circulation, bank deposits and other financial assets that are easily convertible to cash.

The BSP said claims on the domestic sector — liabilities of private and government entities in the country to depository corporations — rose by 10.0 percent year-on-year in January, slightly slower than the newly revised 10.5 percent growth recorded in December.

Net claims on the central government slowed to 8.9 percent in January from 10.8 percent in the previous month, while net foreign assets (NFAs) — which represent the difference between claims on nonresidents and liabilities to nonresidents of depository corporations in peso terms — rose by 10.2 percent year-on-year in January from 5.9 percent in December.

Higher M3 levels typically encourage consumption — the main driver of the Philippine economy — which can raise inflationary pressures. The BSP monitors M3 as part of its monetary policy framework, including during last month’s Monetary Board meeting, when policymakers decided to reduce the central bank’s key policy rate amid tepid economic growth and manageable headline inflation.

However, recent geopolitical developments have placed upward pressure on inflation. Spiking oil prices stemming from the Middle East conflict have pushed local fuel prices higher by as much as P20 per liter, which could drive inflation beyond manageable levels and limit the BSP’s room for further monetary policy easing.