Annual growth of M3 continued to slow rapidly in February. Following an unrevised 3.5 percent in December, the rate fell to just 2.9 percent, its weakest post since October 2014. As a result, the headline 3-monthly yearly rate dropped from 4.1 percent to 3.5 percent, a tick short of the market consensus. Monthly growth was minus 0.1 percent, its second negative print in the last three months.

The monthly fall in annual growth was again due to M1 (minus 2.7 percent after minus 0.8 percent) where growth hit a new record low. Amongst the M3 counterparts, growth of private sector borrowing slowed from 4.4 percent to 3.9 percent and, after adjustment for loan sales and securitisation as well as for positions due to notional cash pooling services, from 4.9 percent to 4.3 percent. The latter was the weakest rate since December 2021 and within this, lending to households slipped from 3.6 percent to 3.2 percent and to non-financial corporations from 6.1 percent to 5.7 percent. Elsewhere, non-monetary corporations excluding insurance corporations and pension funds (6.1 percent after 9.7 percent) also slowed while insurance corporations and pension funds (minus 12.6 percent after minus 11.0 percent) were slightly less negative.

The February update shows that higher ECB interest rates are having an increasingly restrictive effect on overall monetary conditions, and that before the latest 50 basis point hike in official interest rates earlier this month. However, today's data leave both the Eurozone's ECDI (9) and ECDI-P (10) far enough above zero to indicate a mild degree of outperformance by economic activity in general.

The 3-monthly annual rate is seen slowing further in February, sliding 0.5 percentage points to 3.6 percent.

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.