| Consensus | Actual | Previous | |
|---|---|---|---|
| Y/Y - 3-Month Moving Average | 1.6% | 1.3% | 0.8% |
| Private Sector Lending -Y/Y | 0.6% | 0.5% |
Highlights
Eurozone money supply data published today showed year-over-year growth in the broad money aggregate M3 increased from 1.3 percent in April to 1.6 percent in May. This increased the three-month moving average from 0.8 percent to 1.3 percent.
Stronger growth in M3 was again driven by a smaller year-over-year decline in narrow money M1, which fell 4.9 percent on the year after a previous decline of 5.9 percent. Growth in other components remained strong but moderated in year-over-year terms. Amongst the M3 counterparts, private sector loans were up 0.6 percent on the year and, after adjustment for loan sales and securitisation as well for positions due to notable cash pooling services, were up 0.8 percent.
Stronger growth in M3 was again driven by a smaller year-over-year decline in narrow money M1, which fell 4.9 percent on the year after a previous decline of 5.9 percent. Growth in other components remained strong but moderated in year-over-year terms. Amongst the M3 counterparts, private sector loans were up 0.6 percent on the year and, after adjustment for loan sales and securitisation as well for positions due to notable cash pooling services, were up 0.8 percent.
Market Consensus Before Announcement
The 3-month moving average is expected to increase 1.6 percent in May following April's 0.8 percent rise that extended an emerging trend of gains.
Definition
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.
Description
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.
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.
