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Broad money (M3) increased by Lm11.2 million, or 0.3%, in May. Nonetheless, its year-on-year growth rate slowed down slightly to 6.9% from 7.2% in April. Monetary expansion during the month stemmed principally from growth in credit to the non-bank private sector.
Narrow money (M1) contracted by Lm7.2 million, or 0.4%, in May, driven entirely by a further drop in currency in circulation, which fell by Lm13.7 million, or 3.1%. This was only partly offset by a rise in deposits withdrawable on demand. As a result, M1 extended its negative trend, contracting on an annual basis by 4.0% in May, after a 2.5% drop in April.
Intermediate money (M2) went up by Lm11.2 million, or 0.3%, in May, as the drop in M1 was outweighed by a rise in deposits with an agreed maturity of up to two years amounting to Lm15.4 million. This was mainly attributable to higher Maltese lira balances belonging to households and non-bank financial intermediaries. Deposits redeemable at up to three months’ notice rose by Lm3.0 million during the month. Meanwhile, after having increased for the first four months of the year, foreign currency deposits in M2 declined by Lm6.3 million.
As regards the counterparts of M3, domestic credit contracted by Lm15.4 million, or 0.5%, in May driven by lower net claims on central government. The annual rate of credit growth, however, accelerated to 11.8%, from 9.8% in April. This reflected a base effect: a year earlier, privatisation receipts had led to a sharp rise in government deposits and a fall in domestic credit.
The drop in net claims on central government during the month reviewed, amounting to Lm28.7 million, or 6.9%, was mainly attributable to a reduction in bank holdings of Treasury bills and an increase in government deposits with the banking system, which partly reflected the issue of government bonds on the primary market at the beginning of the month.
In contrast, claims on other residents increased by Lm13.3 million, or 0.5%, driven by lending to the non-bank private sector, primarily to households to finance house purchases and to the construction sector.
The net foreign assets of the banking system expanded by Lm43.4 million, or 2.1%, in May. Nevertheless, their annual growth rate remained unchanged at 4.0%. The net foreign assets of the Central Bank of Malta increased by Lm13.3 million, or 1.5%, as exceptional and temporary tax inflows were only partly offset by foreign currency sales to banks. At the same time, net holdings belonging to the rest of the banking system grew by Lm30.1 million, or 2.6%, boosted by purchases of foreign currency from the Bank, higher retained earnings and a rise in revaluation reserves.
The other counterparts of M3 expanded by Lm16.7 million, or 0.9%, in May, driven mostly by the increases in revaluation reserves and retained earnings referred to earlier. In addition, deposits excluded from broad money grew.
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.
Further economic and monetary information can be obtained from the website of the Central Bank of Malta www.centralbankmalta.com |
