Broad money continued to gain ground at quarter-end. A 0.3 percent monthly increase lifted annual M3 growth from 0.4 percent to 0.9 percent and doubled the headline 3-monthly change to 0.4 percent. The data were in line with the market consensus.

The increase in the single month annual rate was again largely attributable to narrow money M1 where the yearly rate of decline eased from 7.8 percent to 6.7 percent. This was its strongest reading since April 2023. Amongst the M3 counterparts, private sector loans were up 0.4 percent on the year after a 0.2 percent increase previously and, after adjustment for loan sales and securitisation as well for positions due to notable cash pooling services, 0.8 percent following a 0.7 percent gain. Within the latter, adjusted loans to households slowed a little (0.2 percent after 0.3 percent) despite a pick-up in lending for consumption (2.4 percent after 2.3 percent) but borrowing by non-financial corporations (0.4 percent after 0.3 percent) continued to firm.

All in all, the March report provides further evidence that the Eurozone economy is beginning to recover from the effects of earlier ECB tightening. That will not worry the central bank unless growth accelerates quickly enough to prevent further progress towards meeting the 2 percent inflation target. Today's update puts the Eurozone RPI and RPI-P at minus 13 and minus 12 respectively, both measures indicating overall economic activity modestly underperforming market forecasts.

The 3-month moving average is expected to increase to 0.4 percent in March following February's as-expected 0.2 percent rate. This would support speculation that the effects of earlier ECB tightening are beginning to diminish.

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.