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Euro zone money growth hits record high in Oct
FRANKFURT - Euro zone money supply growth hit an all-time high in October, probably reinforcing the European Central Bank's worries about inflation even though financial market turmoil largely drove the rise.
- PUBLISHED: Wed 28 Nov 2007, 4:50 PM UPDATED: Sat 4 Apr 2015, 11:23 PM
Annual M3 growth rose to 12.3 percent from September's 11.3 percent, breaking the previous record of 11.7 percent set in July, the ECB reported on Wednesday.
The growth was powered by a 41.8 percent rise in bank deposits with a maturity of up to two years as investors sold riskier assets due to the US subprime mortgage crisis.
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'There's a safe haven effect in that the increase in term deposits is extraordinarily high and the increase in debt securities as well,' Commerzbank economist Michael Schubert said.
Gains in M3 due to changes in investment portfolios pose little inflation threat. But growth in loans to firms and households remained strong, despite the squeeze on credit in European interbank lending markets during the period.
Growth in loans to the private sector overall rose to 11.2 percent from 11.0 percent, with business loans up 13.9 percent and mortgage growth at 7.9 percent, unchanged from the previous month, and consumer loans up 5.5 percent from 5.1 percent.
A Reuters poll showed 32 economists on average expected 12-month M3 growth of 11.5 percent, with forecasts ranging from 10.9 percent to 11.8 percent. For private loan growth, 5 economists on average expected 10.9 percent growth.
'It is very, very difficult to interpret these data given the major gyrations in financial markets,' said Holger Schmieding, chief European economist at Bank of America.
'But we especially note ... loans to non-financial corporations and households are holding steady at high rates, so that suggests that there's nothing in monetary data to project a serious economic slowdown.
'It will reinforce the ECB's tendency not to even consider a rate cut.'
The ECB has kept interest rates at 4.0 percent since June, as it tries to balance inflation dangers from money growth, high oil prices and an economy running close to capacity against the risk of a sharp economic slowdown due to the subprime crisis.
Most economists expect the bank to keep rates unchanged until the end of 2008.
ECB President Jean-Claude Trichet has warned in recent news conferences that M3 data was liable to be distorted by credit market turmoil, which has pushed credit risk premia on interbank loans to record highs.
But the ECB has also said that strong money and credit growth pose a medium term risk to price stability, as the amount of money in the economy grows faster than goods and services to spend it on.
In the past, the ECB estimated 4.5 percent as the maximum non-inflationary growth rate for M3 over the medium term, though it has exceeded this pace for several years.
'The upside risks posed to price stability over the medium term stemming from strong monetary growth will not go unnoticed at the ECB, providing ECB hawks with further ammunition,' said Jodie Tiller, economist at CIBC.
But Commerzbank's Schubert was more cautious about the conclusions the ECB would draw. 'The information value of this for the ECB is not very high,' he said. 'For the monetary policy stance, what happens with the current inflation rate and the consequences of the financial market turbulence are much more important,' he said.