Broad money expanded in February. A 0.2 percent monthly gain put annual growth at 0.4 percent, up from January's 0.1 percent mark and the strongest print since June last year. It was also enough to lift headline 3-month moving average rate from minus 0.2 percent to 0.2 percent, in line with the market consensus.

The increase in the single month annual rate was largely attributable to narrow money M1 which posted a 7.7 percent drop following an 8.6 percent contraction in January. Amongst the M3 counterparts, private sector loans were up 0.2 percent on the year after a 0.1 percent dip and, after adjustment for loan sales and securitisation as well for positions due to notable cash pooling services, 0.7 percent following a 0.4 percent gain. Within the latter, adjusted loans to households were steady (0.3 percent) but borrowing by non-financial corporations (0.4 percent after 0.2 percent) firmed slightly.

In sum, the February data hint that the effects of earlier ECB tightening are beginning to diminish although monetary conditions in general remain tight. Today's update puts both the Eurozone RPI and RPI-P at 3, indicating that overall economic activity is performing much as forecast.

The trend rate of decline in M3 has become gradually more shallow with the consensus for February at a 0.2 percent rise for the annual 3-month moving average. This would follow a 0.2 percent decline in January.

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.