EMU: M3 Money Supply

Mon Jul 27 03:00:00 CDT 2015

Consensus Actual Previous
M3-Y/Y 5.1% 5.1% 5.0%
Priv.Sector Lend-Y/Y 0.6% 0.6% 0.5%

Broad money M3 performed much as expected in June. At 5.0 percent, annual growth was unchanged from the May outturn which put the 3-month moving average at 5.1 percent, up just a tick from last time.

Amongst the major counterparts, yearly growth of loans to households increased 0.3 percentage points to 1.2 percent within which borrowing for house purchase climbed 0.2 percentage points to 1.6 percent. However, lending to non-financial corporations remained negative at minus 0.1 percent, up just 0.1 percentage points from the May rate. Finally, loans to non-monetary financial corporations (excluding pension funds and insurance companies) fell from minus 0.8 percent to minus 1.4 percent.

The June money data contain no real surprises. The ongoing, albeit still sluggish, acceleration in borrowing by households is promising but the weakness of corporate sector loan demand is still a worry. Financial trends may be moving in the right direction but only very slowly.

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.