FRANKFURT (MNI) – M3 developments in the Eurozone may be negative
or at least very modest for some time to come, the European Central
Bank said in its Monthly Bulletin on Thursday.
However, the central bank cautioned that given the unprecedented
nature of the crisis, it is difficult to make projections on M3
developments based on previous experience.
“What makes it difficult to gauge the extent to which [previous]
pattern will be repeated at the euro area level is the fact that on this
occasion the scale of developments,” the ECB said citing the
accumulation of monetary imbalance, the problems in the banking sector
and the decline in economic activity.
“In qualitative terms, the factors currently at work imply
countervailing forces,” the report continued.
On the one hand the stabilization of the banking system as well as
the yield curve and the overall economic recovery “should all help
annual M3 growth to return to positive territory in a relatively short
period of time,” the ECB said.
“On the other hand, the strong money and credit growth registered
over the past few years, which is also apparent in the high level of
private sector indebtedness, may mean that money holders’ balance sheets
need to be reduced further,” it added.
“This may continue to dampen M3 growth, keeping it in negative
territory or at very modest levels for some time to come,” the ECB said.
Should the accumulated liquidity be absorbed via “gradual
deleveraging” instead of being used for fresh consumer goods, “this
would be consistent with a continuation of the low inflationary
pressures stemming from the current monetary developments,” the report
concluded.
–Frankfurt bureau: +49-69-720 142, email: jtreeck@marketnews.com
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