August sa M3: +1.1% y/y
M3 sa 3-mo avg: +0.5% y/y
SA private loans: +1.2% y/y

MNI survey median:
August sa M3 +0.4% y/y
M3 sa 3-mo avg: +0.2% y/y
SA private loans: +1.1% y/y

MNI survey range:
August sa M3 +0.2% to +1.0% y/y
M3 sa 3-mo avg: +0.2% to +0.3% y/y

July sa M3: +0.2% y/y
M3 sa 3-mo avg: +0.1% y/y
SA private loans: +0.8% y/y (revised from +0.9%)
—

FRANKFURT (MNI) – Eurozone M3 broad money supply growth beat all
forecasts in August, expanding at its fastest pace in almost one year,
while private sector loan growth jumped to its strongest level in 14
months, the European Central Bank reported on Monday.

On the year, broad money increased 1.1%, its strongest gain since
September 2009, boosting the three-month moving average to +0.5% y/y.

However, the strong growth of M3 continued to mask the diverging
trends of its main components. The annual growth rate of M1 slowed yet
again in August, reaching +7.7% from +8.1% in the previous month, while
the decline in short-term deposits other than overnight deposits eased
to -4.5% from July’s -5.9% level.

In its most recent monthly bulletin, the ECB noted that monetary
growth was still weak, reflecting to some extent “the impact of the
interest rate constellation.”

Nevertheless, large shifts of monetary assets into higher yielding,
non-monetary vehicles “have gradually faded out,” the bulletin
continued. “Therefore, the degree by which headline M3 growth
understates the underlying pace of monetary expansion is diminishing.”

The growth of loans to the private sector also picked up speed,
expanding by 1.2% on the year, its highest since June 2009’s +1.5% jump.

Looking at the main counterparts of M3, total credit to euro area
residents increased 2.2% on the year in August, up from July’s +1.8%,
while the growth of credit to governments decelerated 0.3 percentage
point to +7.4%. Credit extended to the private sector jumped 1.0% over
the same period.

Within the last category, loans to the private sector — adjusted
for loan sales and securitization — rose 1.3% y/y compared to July’s
+0.8% y/y rate. Conversely, loans to non-financial corporations
continued to contract over the year, though by a slower pace, slipping
1.1% compared to August 2009.

The growth of loans to households reached +2.9% in the year to
August, while loans for house purchases inched up to +3.5%. Consumer
credit fell 0.4% y/y, though up from -0.5% in the year to July.

“The still weak annual growth rate of bank loans to the
non-financial private sector continues to conceal positive growth in
loans to households and diminishing negative annual growth in loans to
non-financial corporations,” ECB President Jean-Claude Trichet said
earlier this month. “These developments are consistent with a normal,
lagged response of loan developments to economic activity over the
business cycle.”

While M3 annual growth reached an 11-month high in August,
developments in M3 remain well below the ECB’s target rate of +4.5%,
suggesting that inflation pressures remain subdued.

Looking to 2011, inflation rates are expected to remain moderate
due to low domestic price pressures, Trichet said. “Inflation
expectations over the medium to longer term continue to be firmly
anchored in line with the Governing Council’s aim of keeping inflation
rates below, but close to, 2% over the medium term,” he added.

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

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