Euro area M3 growth edges up to 3.5% as money moves out of overnight deposits
Victoria Shinder2 min readAnnual growth of the euro area's broad money supply, M3, rose to 3.5% in August from 3.4% in July, the European Central Bank reported on 25 September, averaging 3.4% over the three months to August. The headline barely moved; its composition did.
The narrow aggregate M1 - currency in circulation and overnight deposits - slowed to 2.9% from 3.1%, and its contribution to M3 growth fell from 2.0 to 1.8 percentage points. Short-term deposits other than overnight ones grew faster, at 4.1% against 3.7%, and marketable instruments such as money market fund shares and repos jumped to 7.1% from 4.2%. Among depositors, households' deposits grew 2.4% (2.6% in July) and those of non-financial corporations 4.7% (5.3%), while deposits of investment funds other than money market funds picked up slightly to 1.8%.
On the credit side, adjusted loans to the private sector grew 4.3%, up from 4.1%. Within that, lending to households held at 3.1% and lending to non-financial corporations slowed to 4.2% from 4.4%. Among the counterparts of M3, claims on the private sector contributed 3.4 percentage points and net external assets 2.5 points, both up from July, while longer-term liabilities subtracted 1.9 points, more than the month before. Claims on general government continued to shrink, at minus 0.6% year on year.
What it means
The shift out of overnight deposits into term deposits and money market instruments is what rising policy rates are supposed to produce. When the return on keeping money in instruments that pay a rate goes up, savers and treasurers stop leaving it in current accounts, and M1 slows even while M3 holds up. The same logic shows in the larger drag from longer-term liabilities, which mop up funds that would otherwise sit in M3.
The credit numbers are the more policy-relevant part. Household lending is steady and corporate lending has lost a little pace, which fits the ECB's recent tightening without yet showing a sharp turn. One month of data carries little weight on its own; the useful comparison will come with the September figures and the ECB's next bank lending survey, which asks banks directly whether demand or their own standards are changing.