As a result, the annual rate of growth of M3 rose to 5.2 per cent from 3.4 per cent in the previous month. Monetary growth was driven mainly by a rise in domestic credit, although a slight increase in the net foreign assets of the banking system also contributed.
Narrow money, M1, continued to expand rapidly, adding Lm20.1 million, or 1.3 per cent, in July, mainly reflecting further growth in deposits withdrawable on demand. A small increase in currency in circulation also contributed to the rise in M1. Accordingly, the annual rate of growth of M1 moved up to 10.8 per cent from 8.6 per cent in June.
Intermediate money, M2, increased by Lm30.9 million, or 1.1 per cent. Apart from the increase in M1, growth in M2 reflected a rise in deposits with an agreed maturity of up to two years. These gained Lm10.3 million, or 0.8 per cent, resulting in a further recovery in their annual rate of growth, to -0.7 per cent from -2 per cent in June.
Turning to the counterparts of monetary growth, domestic credit expanded by Lm23 million, or 0.8 per cent, in July, largely reflecting an increase in net claims on central Government. Consequently, the annual rate of credit growth extended its recent upward trend, rising to 13 per cent from 10.7 per cent in June.
Net claims on central Government climbed by Lm22.2 million, or 3.9 per cent, as the Treasury drew down its deposits held with the Central Bank of Malta. Claims on other residents, in contrast, added just Lm0.8 million. Credit to public sector non-financial companies rose, driven by additional lending to the electricity, gas and water services industry.
On the other hand, credit to the private sector decreased, despite continued growth in lending for house purchases, the Central Bank said. In particular, outstanding loans to the wholesale and retail sector contracted significantly.
This may reflect improved
liquidity in the sector following the change in tax collection
procedures from 1 May, with VAT being collected at the retail stage rather than directly on importation.
The net foreign assets of the banking system edged up by Lm1.8 million, or 0.1 per cent, although their annual growth rate eased to eight per cent from 9.6 per cent in June. The Central Bank of Malta’s holdings contracted by Lm2.7 million, mainly due to payments for oil purchases. However, the net foreign assets of the rest of the banking system increased by Lm4.4 million, or 0.8 per cent, possibly reflecting the seasonal increase in tourism. Both the deposit money banks and international banks added to their holdings.
The other counterparts of
M3, which include the capital base of the MFI sector, longer-term financial liabilities, provisions, interest accrued and unpaid and other liabilities, less fixed and other assets, fell by Lm6.1 million, or 0.5 per cent.