Euro area monetary dynamics in August 2025 showed that broad money (M3) growth slowed to 2.9 percent from July's 3.3 percent, with the three-month average to August slowing to 3.2 percent from 3.5 percent in the three months to July, with weakness in marketable instruments (M3M2), which dropped sharply from 6.1 percent to 2.6 percent. Narrow money (M1) remained steady at 5.0 percent, signalling resilience in cash and overnight deposits, while short-term deposits (M2M1) improved modestly to 1.4 percent after months of contraction. Household deposits remained steady at 3.4 percent, while corporate deposits increased to 2.8 percent, although investment funds reduced their placements sharply.

On the lending side, momentum strengthened slightly. Loans to households grew 2.5 percent (up from 2.4 percent), and credit to non-financial corporations accelerated to 3.0 percent from 2.8 percent. This suggests moderate credit demand despite economic headwinds. From a counterpart perspective, claims on the private sector continued to anchor M3 growth (2.5 percentage points), while support from net external assets weakened and government-related contributions declined.

In essence, the latest updates reveal a financial system marked by cautious liquidity, steady household savings, and tentative corporate borrowing. While stable credit growth provides some support to the economy, the decline in broad money signals a tightening liquidity environment, raising questions about the sustainability of domestic demand in the months ahead.

Money growth expected down at 3.3 percent in August versus 3.5 percent in July.

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.