EMU: M3 Money Supply

Fri Dec 29 03:00:00 CST 2017

Actual Previous
M3-Y/Y 5.0% 5.1%
Priv.Sector Lend-Y/Y 2.6% 2.7%

Annual growth of broad money slowed slightly in November. At 4.9 percent, the rate was just a tick short of its unrevised October mark but 2 points below its September outturn and its weakest print since July. As a result, the 3-month moving average measure also dipped a notch to 5.0 percent.

However, loans to the private sector continued to expand at a 2.6 percent yearly pace and, adjusted for loan sales and securitisation, edged 0.1 percentage points firmer to 2.9 percent, their strongest showing since May 2005. Within this, lending to households grew 2.8 percent despite a minimal deceleration in home loans (2.8 percent after 2.9 percent). Borrowing by non-financial corporations picked up to a new multi-year high (3.1 percent after 2.9 percent) while lending to non-monetary financial corporations except insurance corporations and pension funds dropped quite sharply (3.0 percent from 3.7 percent).

The November money statistics show sustained underlying strength and remain consistent with a solid start to 2018 by the Eurozone real economy.

M3 is the European Central Bank's (ECB) preferred broad measure of money supply. Since January 1999, the ECB has tended to focus on the 3-month moving average of the annual growth rate to judge underlying M3 trends although the significance of its 4.5 percent reference rate has been downgraded with time. The private sector lending counterpart is usually seen as the most important element of the M3 report.

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.