NEWS | Wednesday, 06 February 2008

Currency in circulation fell by €152.8 million in December last year

Statistics issued by the Central Bank of Malta showed that broad money (M3 – which 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) increased by Lm15.4 million (€35.9 million), or 0.4%, in December.
Nonetheless, its year-on-year growth rate slowed down for the third consecutive month, edging down to 11.1% from 11.2% in November. Higher private sector credit, coupled with a drop in the other counterparts of M3, were the main factors driving monetary growth during the month.
Narrow money declined by Lm5.8 million (€13.5 million), or 0.4%, in December as a sharp drop in currency in circulation outpaced a sizeable rise in deposits withdrawable on demand.
Currency in circulation fell by Lm65.6 million (€152.8 million), or 20.0%, reflecting lower demand for cash immediately ahead of the euro changeover. In contrast, deposits withdrawable on demand expanded by Lm59.9 million (€139.5 million), reflecting the switch out of currency and the annual transfer of accrued interest on savings deposits. Deposits in Maltese lira belonging to households accounted for most of the rise.
As a result, M1 contracted at an annual rate of 4.2% in December, whereas it had fallen by 4.7% during the year to November.
Despite the contraction in M1, intermediate money (M2 – comprising M1, savings deposits redeemable at notice and time deposits with an agreed maturity of up to and including two years) increased by Lm15.4 million (€35.9 million), or 0.4%, in December, 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.
Overall deposits denominated in Maltese lira increased by Lm60.7 million (€141.4 million), while foreign currency deposits in M2 grew by Lm20.0 million (€46.6 million).
With regard to the counterparts of M3, domestic credit contracted by Lm3.8 million (€8.9 million), or 0.1%, in December, as a drop in net claims on central government offset a rise in claims on other residents. Consequently, the annual rate of credit growth dropped to 10.7% from 12.8% in November.
The decline in net claims on central government mainly reflected a rise 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 real estate, renting and business activities sector.
Increased lending to the wholesale and retail trade sector and to the construction sector also contributed. Nevertheless, the annual rate of growth of claims on other residents persisted on its downward trend, falling to 9.3% from 10.3% in November.
In December, the net foreign assets of the banking system contracted by Lm29.1 million (€67.8 million), or 1.3%. As a result, their annual rate of growth slowed down further to 8.2% from 8.6% in November.
The net foreign assets of the Central Bank of Malta shed Lm21.8 million (€50.8 million), or 2.0% in December, driven mainly by foreign currency sales to the rest of the banking system. At the same time, the net holdings of the rest of the banking system also declined, though to a lesser extent, due to a drop in retained earnings and revaluation reserves.
The other counterparts of M3 declined by Lm48.3 million (€112.5 million), or 2.5%, in December, mainly on account of the transfer of accrued interest on deposits and the drop in retained earnings referred to earlier.