Feb sa M3: -0.4% y/y
M3 sa 3-mo avg: -0.2% y/y
SA private loans: -0.4% y/y

MNI survey median:
Feb sa M3 -0.1% y/y
M3 sa 3-mo avg: -0.1% y/y
SA private loans: -0.6% y/y
MNI survey range:
Feb sa M3 -0.6% to +0.4% y/y
M3 sa 3-mo avg: -0.3% to +0.1% y/y
SA private loans: -0.9% to -0.4% y/y
Jan sa M3: +0.1% y/y
M3 sa 3-mo avg: -0.1% y/y
SA private loans -0.6% y/y

—

FRANKFURT (MNI) – Eurozone M3 money supply dropped more than
generally expected in February — down 0.4% on the year after January’s
meager 0.1% rise — while loans to the private sector contracted at a
slower pace, the European Central Bank said Thursday.

M3 growth thus fell back into negative territory, leaving the
growth rate yet further below the ECB’s reference value of +4.5% and
pointing to low inflationary pressures ahead.

M3 monthly flows showed a rise of E4 billion, partially offsetting
January’s E18 billion fall.

“The growth of M3 and loans to the private sector is likely to
remain weak also in the coming months,” ECB President Jean-Claude
Trichet predicted earlier this month.

Trichet reiterated, however, that actual monetary developments are
likely to be weaker than the underlying pace of monetary expansion,”on
account of the downward impact of the steep yield curve.”

“This fosters the allocation of funds away from M3 and into
longer-term deposits and securities. On the other hand, the narrow
spreads between the interest rates paid on different M3 instruments
imply a low opportunity cost of holding funds in the most liquid
components included in M1,” he explained.

Indeed, the annual growth rate of M1 remained robust at 10.9% after
+11.5% in January. While the high rate reflected mainly base effects,
monthly flows continued to rise, up 0.4% m/m.

By contrast, short-term deposits other than overnight deposits were
down -8.1% on the year after -8.0% in January. Marketable instruments
were down -12.4% after -10.9%.

Concerning the counterparts to M3, the annual growth rate of total
credit to Eurozone residents slowed to +1.5% in February from +1.6% in
January. Growth of credit to governments, still up 8.4% on the year
after +9.1% in January, reflects the higher returns banks obtain on
government bonds with low funding costs at the shorter end.

Annual growth of overall credit extended to the private sector
remained flat for the second month running.

Among the components of that category, the decline in loans to the
private sector decelerated to -0.4% in February, from -0.6% in the
previous month.

Lending to non-financial corporations fell less sharply, -2.5% on
the year after -2.7% in January. Monthly developments showed loans were
up by E13 billion after dropping E7 billion in January.

Annual growth in loans to households, by contrast, continued to
accelerate in February, to +1.8% from +1.6% in January.

The annual rate of growth of lending for house purchases rose to
2.1% in February, from 1.8% in the previous month, while consumer credit
decreased to -0.8% in February, from -0.5% in January and the annual
growth rate of other lending to households increased to 2.7% in
February, from 2.2% in the previous month.

Stronger growth in loans to households on the one hand and negative
annual growth in loans to non-financial corporations remain “consistent
with historical patterns and cyclical regularities,” Trichet said.

“Given the typical lags between turning points in economic activity
and those in the demand for bank loans, growth in loans can be expected
to remain weak over the months to come,” he predicted.

“At the same time, the cost of financing for enterprises has
declined and the sector as a whole has continued to make extensive use
of market-based financing as a substitute for bank financing,” he said.

–Frankfurt newsroom +49 69 720 142; e-mail: jtreeck@marketnews.com

[TOPICS: M$$EC$,M$X$$$,M$XDS$,MT$$$$]