Broad money growth accelerated again in October. At 3.4 percent, the annual rate was up from September's unrevised 3.2 percent and the strongest since December 2022. The pick-up boosted the headline 3-monthly average rate to 3.2 percent, up from 2.8 percent previously and in line with the market consensus.

Amongst the main counterparts, growth of lending to the private sector fell slightly to 1.2 percent while adjusted for transfers and notional cash pooling, the rate was unchanged at 1.6 percent. Within the latter, borrowing by households edged up 0.1 percentage point to 0.8 percent while the rate for non-financial corporations rose 0.1 percentage points to 1.2 percent.

The October data provide further evidence that while the acceleration in money supply growth indicates improving liquidity, weak private-sector lending still highlights underlying economic fragility. For monetary policy, the ECB continues to prioritise inflation control but the bank is also increasingly concerned about downside risks to the real economy. The latest update takes the Eurozone RPI to minus 31 and the RPI-P to minus 37. In broad terms, economic activity running is well behind market expectations.

Forecasters see the annual growth rate of M3 accelerating to 3.4 percent in October, lifting the headline 3-month moving average from 2.8 percent to 3.2 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.