Annual broad money growth was again positive at the start of the year. A 0.1 percent yearly rise followed December's upwardly revised 0.2 percent post to lift the headline 3-month moving average rate from minus 0.6 percent to minus 0.2 percent, in line with the market consensus. On the month, M3 fell 0.2 percent but this came after a 0.8 percent gain previously.

The marginal dip in the annual rate was largely attributable to narrow money M1 which saw an 8.6 percent drop following an 8.5 percent slide in December. Amongst the M3 counterparts, private sector loans were off 0.1 percent on the year, down from a 0.2 percent increase in December. After adjustment for loan sales and securitisation as well for positions due to notable cash pooling services, the rate eased a tick to 0.4 percent. Within this, adjusted loans to households (0.3 percent after 0.4 percent) slowed a little further and borrowing by non-financial corporations (0.2 percent after 0.5 percent) similarly cooled.

In sum, the January data show that the effects of earlier ECB tightening are still filtering through. Still, the trend rate of decline in M3 is becoming gradually more shallow and suggests that the peak impact has now passed. Moreover, today's monetary update leaves both the Eurozone RPI (22) and RPI-P (26) quite well in positive surprise territory showing that economic activity in general is still running ahead of forecasts.

Annual broad money growth (on a 3-month basis) is expected to climb from minus 0.6 percent in December to minus 0.2 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.