July sa M3: +0.2% y/y
M3 sa 3-mo avg: +0.1% y/y
SA private loans: +0.9% y/y

MNI survey median:
May sa M3 +0.3% y/y
M3 sa 3-mo avg: +0.2% y/y

MNI survey range:
May sa M3 0.0% to +0.7% y/y
M3 sa 3-mo avg: +0.1% to +0.2% y/y

June sa M3: +0.2% y/y
M3 sa 3-mo avg: 0.0% y/y
SA private loans: +0.5% y/y

—-

FRANKFURT (MNI) – Eurozone M3 broad money supply rose less than
generally expected in July while loans to the private sector accelerated
significantly on the year, the European Central Bank reported on
Thursday.

M3 rose 0.1% on the month and was up 0.2% on the year. Between May
and July, broad money was 0.1% higher compared to the same period one
year ago. Nevertheless, the M3 growth rate remained sharply below the
ECB’s price stability reference value of +4.5%, pointing to low
inflationary pressures ahead.

Private loans accelerated to the highest level in over a year but
loans to non-financial firms remained in negative territory.

On the components side, the overall growth in M3 continued to
conceal substantial differences between strong but declining annual
growth in M1 (+8.1% after +9.2%) and negative growth in both marketable
instruments (-8.3% after -7.1%) and other short-term deposits (-6.0%
after -7.1).

“Overall, the developments in M3 continue to be explained, to some
extent, by the impact of the interest rate constellation” which still
offers an incentive to allocate new funds outside of M3,” the ECB said
in its last Monthly Bulletin. However, this effect is gradually waning
so that headline M3 growth should understate the pace of underlying
monetary growth to a diminishing extent, it added.

At the same time, “shorter-term developments in M3 and some of its
components and counterparts have remained volatile, and this volatility
may well persist,” ECB President Jean-Claude Trichet warned earlier this
month.

Looking at the counterparts of M3, the annual growth rate of total
credit to Eurozone residents picked up to +1.9% in July from +1.5% in
June. Growth of credit to governments slowed to +7.6% on the year from
+8.1% in June while the annual growth of credit extended to the private
sector increased to 0.6% in July, from 0.1% in the previous month.

Private loans accelerated to 0.9% y/y in July from a far more
moderate, upwardly revised 0.5% y/y in the previous month, reaching the
highest level since June 2009.

The annual rate of change in loans to non-financial corporations
increased to -1.3% in July from -1.6% in June but remained in negative
territory.

In contrast, the annual growth rate of loans to households stood at
2.8% in July, unchanged from the previous month. Growth in lending for
house purchases increased to 3.5% in July, from 3.3%. The annual rate of
change of consumer credit decreased to -0.6% in July, from -0.4% in
June, while the annual growth rate of other lending to households
decreased to 2.6% in July, from 3.0% in the previous month.

“A lagged response of loans to non-financial corporations to
developments in economic activity is a normal feature of the business
cycle,” Trichet assured during his last press conference. He said the
data “do not confirm or suggest that we could have a credit crunch. I do
not think that it is at all appropriate to say that.”

Nevertheless, the ECB president conceded that it was too early to
declare victory after the second quarter bank lending survey showed
banks unexpectedly tightened credit standards in the second quarter and
planned further tightening for loans to enterprises in the third
quarter.

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

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