M3 expanded at an annual rate of 5.0 percent in March, unchanged from its mid-quarter outturn. This also put the 3-month moving average rate at 5.0 percent, up a tick from last time. The results were in line with market expectations.
Lending to the private sector was 1.0 percent firmer on the year, down a couple of ticks from February but unchanged at a 0.9 percent rate after adjustment for sales and securitisation. Similarly adjusted loans to households were 0.1 percentage points stronger at 1.6 percent (house purchase steady at 2.3 percent) while borrowing by non-financial corporations crept up to 1.1 percent from 1.0 percent. Lending to non-monetary financial corporations, excluding insurance corporations and insurance funds, improved from minus 1.3 percent to minus 1.2 percent.
With latest round of targeted longer-term repo operations (TLTRO II) not due to begin until June, the ECB should not be too displeased with the March M3 data. Financial conditions in the Eurozone seem to be improving gradually and the March easing package should help to ensure a more favourable environment going forward. That said, credit growth remains too slow to be confident that the economic recovery will progress as desired.
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.
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