ECB Bank lending and monetary aggregates go skew whiff in October

It would appear that the crisis is drawing and keeping liquidity and credit within the financial system and not out and about as it would need to in order to maintain a healthy monetary framework.

The annual growth rate of the broad monetary aggregate M3 fell to 2.6% in October from 3% in September. With inflation running at 3% in the year to October, real annual M3 growth fell by 0.4%. 

M1 and M2-M1 annual growth rates both decelerated in October, while M3-M2 accelerated to 7.8% annual growth.  This latter component was heavily influenced by the annual growth rate in Non-Monetary Financial Intermediary deposits of 9.8%, whereas household and non financial corporate annual deposit growth rates fell to 2.1% and 1.8% respectively. 

On the asset side of the balance sheet, lending to euro area residents fell to an annual 1.6% growth rate in October (-1.36% in real terms) from 2.3%, the growth rate to households fell to an annual 2.2% and to non financial corporations rose to an annual 1.9%.  All were below the rate of inflation meaning negative real rates of growth. 

The annual growth rate of loans to non monetary financial intermediaries grew by 8.7% in October from 4.5% in the year to September. 

Interesting points from the monthly monetary data are as follows

  • M1 has declined for 2 months in a row.
  • All monetary components, including M2-M1 and M3-M2, declined in October
  • net external assets fell by 73.4bn in October or close to 8% of September’s stock of external assets.
  • Loans adjusted for securitisations were almost double loans to euro area residents before adjustment.
  • Components of monetary aggregates (excluding currency in circulation) with only two exceptions (deposits with an agreed maturity over 2 years and redeemable at notice of up to 3 months) declined in October.
  • Repos grew by 34% in the year to October but fell by 4.3% in the month to October.
  • On an annual basis loans to other financial institutions dominate loans to government, households and non financial corporations: in the month to October loans to all bar Other Financial Institutions fell – unadjusted data.

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