Annual broad money growth moved back above zero in December for the first time since last June. At 0.1 percent, the year-end rate was up from November's unrevised minus 0.9 percent and strong enough to boost the headline 3-month moving average rate from minus 1.0 percent to minus 0.6 percent. This was 0.3 percentage points above the market consensus. On the month, M3 expanded 0.7 percent following a 0.2 percent gain previously.

The rebound in the annual rate was largely attributable to narrow money M1 which saw an 8.5 percent drop following a 9.5 percent slide in mid-quarter. Amongst the M3 counterparts, private sector loans rose 0.3 percent on the year, up from 0.1 percent. After adjustment for loan sales and securitisation as well for positions due to notable cash pooling services, the rate was a tick firmer at 0.5 percent. Within this, adjusted loans to households (0.3 percent after 0.5 percent) slowed further but borrowing by non-financial corporations (0.4 percent after 0.0 percent) accelerated for the first time since September 2022.

The December data mean that M3 has expanded in three of the last four months. The trend remains modest and households are still tightening their belts but the signs are that monetary conditions are stabilising and lower bond yields are helping to underpin loan demand. Today's surprisingly firm report lifts the Eurozone RPI and RPI-P to 9 and 10 respectively. In other words, overall economic activity is progressing a little faster than forecast.

Annual broad money growth (on a 3-month basis) is expected to remain in contraction, at minus 0.9 percent versus minus 1.0 percent in November.

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.