The latest monetary report indicates a steady expansion in euro area liquidity, with the broad monetary aggregate M3 growing by 3.6 percent in January 2025, up from 3.4 percent in December. This reflects stronger money supply dynamics, primarily driven by increased M1 growth (2.7 percent), signalling higher liquidity in currency circulation and overnight deposits.

Loan growth to households (1.3 percent) and non-financial corporations (2.0 percent) shows a mild but positive credit expansion, potentially supporting economic activity. However, short-term deposits (M2-M1) and marketable instruments (M3-M2) declined, shifting investor preferences towards more liquid assets. Notably, household deposits slowed to 3.3 percent, while non-financial corporations increased to 3.1 percent, reflecting evolving corporate liquidity needs. Meanwhile, net external assets contributed less to M3 growth, suggesting moderating capital inflows.

In essence, the monetary data points to cautious economic optimism, with improving credit conditions but subduing deposit growth. The interplay between monetary expansion and credit demand will be crucial in shaping inflationary trends and financial stability in the coming months. The latest update takes the RPI to minus 13 and the RPI-P to minus 15. This means that economic activities are generally behind the consensus of the euro area economy.

Money supply growth is seen at 3.7 percent in January versus 3.6 percent in December.

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.