Narrow money doubles to 6%, broad money growth rate at 7.8% in September

Broad money
The Central Bank of Malta reports that broad money, otherwise known as M3, continued to expand moderately in September as underlying credit growth was weak and the net foreign assets of the banking system declined. As a result, M3, which consists of currency in circulation and residents’ deposits with the banking system, added Lm7.7 million. Whereas currency in circulation and Maltese lira deposits increased, residents’ foreign currency deposits declined, reversing part of the rise recorded during the previous month. The annual rate of growth of broad money accelerated to 7.8%, partly because M3 had fallen in September 2000, when both the Government and the private sector had issued securities on the primary capital market.

Narrow money
Narrow money, M1, continued to fluctuate sharply from month to month. After having fallen in August, M1 rose by Lm12.9 million in September, with the annual growth rate doubling to nearly 6%. Demand deposits recovered, rising by Lm10.8 million as personal and corporate deposits increased, while public sector corporations added to their deposits with the Central Bank. Currency in circulation, which is the other component of narrow money, resumed growth, rising by Lm2 million. The demand for cash has been growing since the beginning of the year, possibly a reaction to falling returns on alternative assets.

Foreign funds, quasi money
A drop in corporate savings deposits denominated in foreign currency accounted for the Lm6.2 million drop in savings deposits in September. The funds in these foreign currency accounts were held in connection with a collective investment scheme launched by a major bank earlier in the summer. When the closing date for the scheme expired, the funds were invested directly abroad. In contrast, time deposits hardly changed as growth in personal deposits was almost matched by a drop in those belonging to public sector corporations. Overall, quasi-money, which is the sum of savings and time deposits, decreased by Lm5.1 million, with the annual growth rate remaining stable at 8.5%.

Domestic credit
After having contracted in August, domestic credit expanded by Lm51.2 million in September, with the annual growth rate edging up to 8.9% as a result. Claims on the private and parastatal sectors expanded by Lm44.3 million, or 2.5%, as major banks charged six months’ interest to borrowers’ loan accounts during the month. This rise had no impact on monetary aggregates, but was reflected in an increase in the net non-monetary liabilities of the banking system. Because of interest charges, credit to almost all categories of borrower increased, with claims on the parastatal sector and on private borrowers rising by Lm6.3 million and Lm38 million, respectively. Nevertheless, underlying credit expansion was weak, with the annual rate of growth dropping to a ten-year low of 4.2%.

Net claims on government
Meanwhile, net claims on government increased by Lm6.9 million, as banks added to their holdings of Treasury bills. Since net claims on Government had contracted in September last year, when the Government had sold stocks to the non-bank sector, the annual rate of growth accelerated further, to 31.8%.

Banking system’s foreign assets
In September the net foreign assets of the banking system decreased by Lm20.5 million. Those of the Central Bank rose, albeit marginally, for the third month in succession, adding Lm2.9 million. As this increase was considerably less than that recorded during September last year, however, their annual growth rate dropped by over one percentage point to –1.2%. Meanwhile, the net foreign assets of the rest of the banking system declined by Lm23.4 million, reversing the gain of the previous month. The net foreign assets of the domestic banks, which accounted for two-thirds of this drop, decreased by Lm16.1 million. In part, this drop reflected the transfer of funds abroad by a major bank in connection with the collective investment scheme referred to earlier.