In May 2025, the euro area's monetary dynamics remained relatively stable, signalling a cautious yet consistent credit environment. Broad money supply (M3) grew at an annual rate of 3.9 percent, unchanged from April, while it averaged 3.8 percent over the three months to May. The narrower M1 aggregate, comprising currency and overnight deposits, accelerated to 5.1 percent, reflecting stronger liquidity and possibly renewed consumer confidence.

Within M3, marketable instruments posted the most significant increase, growing by 11.2 percent year-over-year, suggesting investors may be favouring more liquid, low-risk assets amid uncertain conditions. Conversely, short-term deposits (excluding overnight) contracted slightly, indicating a shift in preference toward more accessible funds.

Lending also presented a mixed picture. Loans to households inched up to 2.0 percent growth, suggesting stable but cautious household borrowing. Corporate lending softened slightly to 2.5 percent, hinting at a tempered investment appetite among businesses. Meanwhile, deposits by households and firms continued to grow modestly, while those from investment funds fell sharply, possibly signalling portfolio rebalancing.

On the asset side, net external assets and private sector claims drove M3 growth, contributing 2.6 and 2.4 percentage points, respectively. Indeed, the data portray a financial system maintaining balance, with liquidity growth and moderate lending pointing to a still-supportive, yet watchful, monetary environment. These updates bring the RPI to minus 39 and the RPI-P to minus 46, indicating that economic activities are significantly behind expectations for the euro area economy.

Slightly faster growth rate of 4.0 percent expected for money supply, up from 3.8 percent in April.

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.