May sa M3: -0.2% y/y
M3 sa 3-mo avg: -0.2% y/y
SA private loans: +0.2% y/y

MNI survey median:
May sa M3 +0.4% y/y
M3 sa 3-mo avg: flat y/y
MNI survey range:
May sa M3 -0.1% to +0.6% y/y
M3 sa 3-mo avg: -0.2% to +0.1% y/y

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

FRANKFURT (MNI) – Eurozone M3 money supply unexpectedly registered
its fourth annual contraction in May, following April’s downward
revision to a drop of equal magnitude, the European Central Bank
reported Monday.

Loans to the private sector rose on an annual basis for the second
month in a row, the ECB said.

M3 fell 0.2% on the month to E9.365 trillion, for a decline of 0.2%
on the year. As a result, M3 declined -0.2% in the March-May period
compared to the same period one year ago.

As M3 levels peaked in April 2009, base effects should ensure that
any further annual declines in money supply are limited in the near
term.

In its Monthly Bulletin published in mid-June, the ECB reiterated
that the underlying pace of money growth was understated by the M3
indicator.

Furthermore, the effect of the steep yield curve on short-term
deposits outside of M3 appeared to be easing, while narrow spreads
between the interest rates on the various short-term deposits encouraged
asset reallocation within M3, “with shifts towards overnight deposits,
and thus M1,” the ECB continued.

To counter fears that its bond-buying program might lead to higher
inflation over time, the central bank has made a point of sterilising
the liquidity it has injected via its purchases.

“What we’ve done is neutralise the impact that this program is
going to have,” Trichet said to European Parliament’s Economic and
Monetary Affairs Committee last week. “We have taken out everything that
we have put in.”

The bond purchase program does not alter the ECB’s monetary policy
stance and represents no inflation risk, Trichet stressed.

Among the components of M3, currency in circulation and overnight
deposits (M1) fell 0.1% from April, leaving the annual change at 10.3%,
down from April’s 10.7% level.

Conversely, M2, which includes M1 as well as short-term deposits
other than overnight deposits, increased 0.1% on the month and was 1.4%
higher on the year.

Looking at the main counterparts to M3, the annual growth rate of
credit extended to euro area residents was +1.8%, unchanged from April’s
print, while credit extended to the government accelerated from +8.7% to
+9.8% year-over-year.

Although credit growth to the private sector continued to expand,
rising 0.1% since May 2009, the figure once again masks a divergence
within its sub-components.

The annual growth of loans to the private sector accelerated to
+0.2%, with household-extended-credit growth strengthening modestly to
+2.6% year-over-year, boosted by a 3.1% annual increase in mortgages,
while consumer credit declined 0.4%.

Over the same period, however, loans to the non-financial sector
fell 2.1% on the year.

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

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