Broad money (M3) increased by Lm14.4 million (EUR 33.5 million), or 0.4%, in November, the Central Bank said. Nonetheless, its year-on-year growth rate slowed down for the second consecutive month, falling to 11.2% from 11.6% in October. Domestic credit expansion was the main factor driving monetary growth during the month.
In line with developments in recent months, narrow money (M1) declined by Lm8.8 million (EUR 20.5 million), or 0.5%, in November, as a further sharp drop in currency in circulation exceeded an increase in deposits withdrawable on demand. While the former reflected lower demand for cash in the face of the imminent euro changeover, the latter was mainly driven by deposits in Maltese lira by households. Consequently, M1 contracted by 4.7% in November on an annual basis, as against a 3.8% fall in October.
Despite the contraction in M1, intermediate money (M2) increased by Lm14.4 million (EUR 33.5 million), or 0.4%, in November, fuelled by growth in deposits with an agreed maturity of up to two years. The latter stemmed primarily from a rise in Maltese lira deposits belonging to households. Deposits redeemable at up to three months’ notice rose slightly during the month. At the same time, foreign currency deposits in M2 grew by Lm4.6 million (EUR 10.7 million).
As regards the counterparts of M3, domestic credit expanded by Lm49.1 million (EUR 114.4 million), or 1.6%, in November, as both net claims on central government and claims on other residents rose. Nonetheless, the annual rate of credit growth slowed down slightly, falling to 12.8% from 13.2% in October. The increase in net claims on central government mainly reflected a drop in Government deposits with the Central Bank of Malta. The rise in claims on other residents was principally attributable to higher lending to households – mostly to finance house purchases – and to the manufacturing sector. Increased lending to the construction and to the hotels & restaurants sectors also contributed. Nevertheless, the annual rate of growth of claims on other residents declined marginally to 10.3%.
In November, the net foreign assets of the banking system contracted by Lm37.2 million (EUR 86.7 million), or 1.6%. As a result, their annual rate of growth slowed down to 8.7% in November from 10.1% in October.
The net foreign assets of the Central Bank of Malta surged by Lm239.4 million (EUR 557.7 million), or 27.5%, in November. This was due to a special factor, namely the decision by the Central Bank of Malta to commence the alignment process with ECB practice concerning minimum reserve requirements. Consequently, credit institutions that operate predominantly with non-residents, which were previously exempted from maintaining reserve deposits with the Central Bank of Malta, became obliged to hold reserve deposits.
The latter were placed with the Bank in foreign currency. The large increase in the Bank’s external reserves as a result of this transaction is expected to have been partially reversed on 1 January 2008. This is because on that date the ECB’s regulations on minimum reserve requirements came into force, implying a lowering of the reserve requirement ratio from its current level of 4% of the reserve base to 2%, the level prevailing in the Eurosystem.
Reflecting the transfer of foreign assets to the Central Bank of Malta the net holdings belonging to the rest of the banking system fell, with the drop being reinforced by a reduction in revaluation reserves. Overall, the net foreign assets of the rest of the banking system contracted by Lm276.6 million (EUR 644.3 million), or 19.4%.
The other counterparts of M3 declined by Lm2.5 million
(EUR 5.8 million), or 0.1%, in November, mainly on account of the drop in
revaluation reserves mentioned earlier.
Definitions:
Narrow money (M1) includes currency in circulation, demand deposits and savings deposits withdrawable on demand.
Intermediate money (M2) comprises M1, savings deposits redeemable at notice and time deposits with an agreed maturity of up to and including two years.
Broad money (M3) comprises M2, banks’ repurchase agreements with the non-bank sector and banks’ debt securities issued with an agreed maturity of up to and including two years.