Annual M3 growth was unchanged at 2.3 percent in July, its strongest reading since February 2023 and lifting the headline 3-month moving average rate from 1.7 percent to 2.0 percent. This was just a tick short of the market consensus. Monthly growth was minus 0.2 percent.

As usual, the acceleration was dominated by narrow money M1 where the yearly rate of contraction eased from minus 3.4 percent to minus 3.1 percent. Amongst the main M3 counterparts, private sector loans were up 1.1 percent on the year after a 0.9 percent increase in June. Adjusted for the effects of transfers to and from MFI balance sheets as well as for notional cash pooling services, the rate increased from 1.1 percent to 1.3 percent, its fastest pace since July last year. Within this, lending to households climbed from 0.3 percent to 0.5 percent as borrowing for consumption picked up from 2.8 percent to 3.0 percent. Loans for house purchase were also a tick firmer at 0.5 percent but borrowing by non-financial corporations slipped from 0.7 percent to 0.6 percent, its first fall since April.

Overall, the July update is a little softer than anticipated but it remains in line with sluggish Eurozone growth. A cut in key ECB interest rates in September remains a probability, subject to a favourable flash HICP report on Friday. Today's data put the Eurozone RPI at minus 26 and the RPI-P at minus 31. Economic activity in general continues to undershoot market expectations.

The 3-month moving average rate is expected to increase to 2.1 percent in July from June's 1.7 percent that extended a trend of gains consistent with gradual economic recovery.

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.