September sa M3: +2.7% y/y
M3 sa 3-mo avg: +3.0% y/y
SA private loans: -0.8% y/y

MNI survey median:
September sa M3: +3.0% y/y
M3 sa 3-mo avg: +3.0% y/y
SA private loans: -0.8% y/y

MNI survey range:
September sa M3: +2.2% to +3.4% y/y
M3 sa 3-mo avg: +2.7% to +3.3% y/y
SA private loans: -1.0% to -0.5% y/y

August sa M3: +2.8% y/y
M3 sa 3-mo avg: +3.1% y/y
SA private loans: -0.6% y/y

FRANKFURT (MNI) – Annual private sector loan volume in the Eurozone
contracted as generally expected in September, while the M3 broad money
supply growth slowed to a five-month low, the European Central Bank
reported on Thursday.

Loans to the private sector fell by 0.8% on the year, bringing the
annual growth rate of credit extended to the private sector to -1.3%
compared to -1.2% in August. Adjusting for sales and securitisation,
private sector loans were down by a more modest 0.4% y/y.

Household loans rose by 0.1%, halving August’s rate of growth,
with mortgages – the most important component – 0.7% higher on the year
compared with August’s +0.8% annual rate.

Conversely, loans extended to non-financial corporations fell by
E21 billion on the month, tripling August’s decline and resulting in an
annual contraction of 1.4% after August’s 0.7% slide.

The growth rate of loans to governments rose to 8.3% on the year,
up 0.2 percentage point from August.

With the annual rate of lending growth still subdued, strong
evidence has yet to emerge that the E1.2 trillion lent to banks via the
ECB’s two three-year long-term refinancing operations are reaching the
real economy. A record-low ECB refinancing rate also seems to have had
little impact, due in large part to financial market segmentation.

“The soundness of banks’ balance sheets will be a key factor in
facilitating both an appropriate provision of credit to the economy and
the normalisation of all funding channels, thereby contributing to an
adequate transmission of monetary policy to the financing conditions of
the non-financial sectors in the different countries of the euro area,”
ECB President Mario Draghi said earlier this month.

On the other side of the equation, credit demand remains weak and
is unlikely to recover in the near term amid a deteriorating economic
outlook, waning demand from business, rising jobless fears and a bleaker
financial outlook for consumers.

Broad money (M3) grew 2.7% on the year in September, below both
August’s 2.8% rate and the median forecast of +3.0%. As a result, the
three-month moving average came to +3.0%, still well below the ECB’s
target of +4.5%.

Over the same period, narrow money (M1) growth slowed to +5.0% from
August’s +5.2%, while the growth rate of short-term deposits other than
overnight deposits eased 0.1 percentage point to +0.6% y/y. Marketable
instruments fell 1.4% on the year, deepening the previous month’s 0.3%

While Eurozone inflation of 2.6% in September remained well above
ECB’s medium-term target of close to but below 2%, the modest growth in
broad money indicates that inflation risks are not high at the moment.
In fact, Draghi’s comments to Germany’s Bundestag on Wednesday suggested
the opposite: “In our assessment, the greater risk to price stability is
currently falling prices in some euro area countries.”

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