EMU: M3 Money Supply

Wed Apr 29 03:00:00 CDT 2015

Consensus Actual Previous
M3-Y/Y 4.0% 4.1% 3.8%
Priv.Sector Lend-Y/Y 0.1% 0.1% -0.1%

Broad money growth continued to accelerate in March. At a 4.6 percent annual rate, up from February's 4.0 percent pace, M3 expanded at its fastest pace since April 2009. As a result, the 3-month moving average measure climbed 0.3 percentage points to 4.1 percent, also its strongest performance in nearly six years.

Annual growth of lending to the private sector finally turned positive (first time since 2012) although at just 0.1 percent, it was still far too soft to be confident that it can accommodate a meaningful economic recovery. Borrowing by households registered a zero rate, up a couple of ticks from mid-quarter, and within this loans for house purchase improved from 0.0 percent to 0.2 percent. However, lending to non-financial corporations remained stubbornly negative, down 0.6 percent on the year after a 0.7 percent contraction last time. Finally, borrowing by non-monetary financial institutions (excluding insurance companies and life assurance companies) jumped to a 2.3 percent rate from 0.5 percent in February.

The ECB will welcome what was the fifth consecutive monthly acceleration in annual M3 growth. However, without a much more robust showing by both households and non-financial corporations the overall financial picture will remain unsatisfactory. QE may be starting to have an impact but there is a long way to go yet.

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.