EMU: M3 Money Supply

Thu Mar 26 04:00:00 CDT 2015

Consensus Actual Previous Revised
M3-Y/Y 4.0% 3.8% 3.6% 3.5%
Priv.Sector Lend-Y/Y -0.1% -0.1% -0.2%

Broad money growth accelerated again in February. However, at 4.0 percent the yearly rise in M3 was up from a significantly weaker revised 3.7 percent rate in January and on the soft side of expectations. Even so, the 3-month moving average measure still climbed from a downwardly revised 3.5 percent rate at the start of the year to 3.8 percent, its fastest pace since May 2009.

Private sector bank lending remained disappointingly sluggish although annual growth did edge up a tick to minus 0.1 percent. That said, within this borrowing by households slowed to a minus 0.2 percent yearly rate from minus 0.1 percent last time and loans for house purchase dipped from zero to minus 0.1 percent. More positively, lending to non-financial corporations increased from minus 1.2 percent to a minus 0.7 percent rate. Lastly borrowing by non-monetary financial corporations (excluding insurance companies and pension funds) decreased 0.8 percent from a year ago after a 1.4 percent decline last time.

Today's monetary data suggest that businesses are becoming slightly more confident but consumers remain reluctant to take on new debt. As such they paint a mixed financial picture. Still, since hitting a low of 0.8 percent in April 2014 annual growth of M3 has accelerated in every month bar October when it was stable. Broad trends seem to be moving in the right direction and the ECB will obviously be hoping that the launch of QE earlier this month will quicken the pace of recovery over coming quarters.

M3 money supply is the European Central Bank's broadest measure of money supply growth. Since January 1999, the ECB has used the year-over-year three-month moving average as its preferred measure of money supply growth.

While other central banks have virtually ignored money supply data, the European Central Bank has not. Thanks to the influence of the Bundesbank in organizing the ECB, M3 money supply was established as one of the 'two pillars' of monetary policy used by the ECB, the other being the harmonized index of consumer prices (HICP). While the target for HICP is two percent, the seemingly largely ignored reference target for M3 growth is 4.5 percent as measured by a three month moving average which is compared with the same three months a year earlier.

M3 measures overall money supply. It consists of M1 which is currency in circulation plus overnight deposits and M2 which include deposits with an agreed maturity up to two years plus deposits redeemable at up to three months' notice. Not all M3 measures are alike. For example, ECB M3 is approximately equivalent to the Federal Reserve's M2 measure. Because an increase in M3 leads to price inflation, this figure can also be indicative of the likelihood of future interest rate hikes.