Mar sa M3: -0.1% y/y
M3 sa 3-mo avg: -0.1% y/y
SA private loans: -0.2% y/y

MNI survey median:
Mar sa M3 -0.1% y/y
M3 sa 3-mo avg: -0.2% y/y MNI survey range:
Mar sa M3 -0.4% to +0.1% y/y
M3 sa 3-mo avg: -0.2% to -0.1% y/y

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

—

FRANKFURT (MNI) – The contraction of Eurozone M3 money decelerated
in March as generally expected while loans to the private sector also
declined at a slower pace, the European Central Bank said Thursday.

Nevertheless, the M3 growth rate remained sharply below the ECB’s
reference value of +4.5%, pointing to low inflationary pressures ahead.

M3 monthly flows showed a rise of E13 billion, adding to February’s
E4 billion increase.

In its latest Monthly Bulletin, the ECB warned that M3 developments
in the Eurozone are particularly difficult to project at the current
juncture.

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.

President Trichet predicted earlier in April that “the growth of M3
and loans is likely to remain weak” at least “in the coming months.”

The annual growth rate of M1 remained robust at 10.9% after +11.0%
in February. While the high rate reflected mainly base effects, monthly
flows continued to rise, up 10 billion.

By contrast, short-term deposits other than overnight deposits were
down -8.0% on the year after -8.1% in February. Marketable instruments
were down -10.8% after -12.3%.

Concerning the counterparts to M3, the annual growth rate of total
credit to Eurozone residents picked up slightly to +1.7% in March from
+1.6% in February.

Growth of credit to governments, increased 9.9% on the year from
+9.3% in February, reflects the higher returns banks obtain on
government bonds with low funding costs at the shorter end.

Overall credit extended to the private sector fell -0.1% on an
annual basis after remaining unchanged for two consecutive months,
raising fresh concerns over credit constraints.

Among the components of that category, the decline in loans to the
private sector decelerated to -0.2 from -0.4% in February.

Annual growth in loans to households continued to accelerate in
March, to +2.2% from +1.8% in February.

The annual rate of growth of lending for house purchases rose to
2.6% from 2.1%, while consumer credit decreased to -1.1% from -0.8% and
the annual growth rate of other lending to households increased from
2.9% from 2.7%.

Lending to non-financial corporations, by contrast, continued to
fall at a rate of 2.4%, the same as in February. Monthly developments
showed loans were down E7 billion after rising E13 billion in February
and dropping E7 billion in January.

Trichet assured that “it is a normal feature of the business cycle
that loans to non-financial corporations remain weak for some time after
economic activity has picked up.”

Nevertheless, today’s weak lending figures as well as yesterday’s
Bank Lending Survey may offer some cause for concern.

The BLS results also point to weaker net demand for loans in the
first quarter of 2010, which was negative for loans to enterprises
(-13%, as against -8% in the fourth quarter of 2009) and in particular
for loans to households (-2% for housing loans, down from 16% in the
fourth quarter of 2009).

By contrast, banks had expected in the previous survey round a
positive net demand for loans to enterprises and for housing loans, the
ECB reported.

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

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