Monetary dynamics in July 2025 reflected a modest but uneven strengthening of liquidity and credit conditions across the euro area. Broad money (M3) growth edged up to 3.4 percent, with the last three months coming in at 3.5 percent, mainly driven by the narrower aggregate M1, which accelerated to 5.0 percent, suggesting stronger demand for cash and overnight deposits.

However, weakness in short-term deposits (M2-M1: minus 0.8 percent) and a sharp slowdown in marketable instruments (M3-M2: 6.4 percent from 10.4 percent revealed a cooling in more volatile components. Household and corporate deposit growth improved slightly, while investment fund deposits contracted sharply, indicating a shift in portfolio preferences.

On the credit side, lending activity showed gradual resilience, with loans to households rising to 2.4 percent and those to non-financial corporations increasing to 2.8 percent, indicating cautious but steady financing demand. Counterparts of M3 indicated a more complex backdrop. Private sector claims remained stable at 2.6 percentage points, but external asset contributions weakened, reflecting a decline in net capital inflows. Meanwhile, government borrowing picked up slightly, signalling rising fiscal financing needs.

Overall, July's figures suggest monetary expansion continues at a modest pace, underpinned by household and corporate credit demand, but tempered by external headwinds and weaker investment fund flows. The latest update brings the RPI to minus 21 and the RPI-P to minus 24, indicating that economic activities continue to lag behind the expectations for the euro area economy.

Money supply growth expected at 3.4 percent in July versus 3.7 percent in June.

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.