Broad money (M3) contracted by Lm16.6 million, or 0.6 per cent, in July, mainly as a result of a shift into government securities by the public, which subscribed actively to new bond issues. The fall in M3 also reflected flows into longer-term deposits, which are excluded from the M3 aggregate.

Thus, the annual growth rate of M3 turned negative, switching from a rise of 1.4 per cent in June to a contraction of 0.3 per cent in July. Turning to the counterparts of M3, domestic credit decreased as net claims on the Government fell following the bond issue. In contrast, the banking system’s net foreign assets continued to rise.

Narrow money (M1) fell by Lm18.5 million, or 1.1 per cent, in July, mainly reflecting a fall in deposits withdrawable on demand, in particular those belonging to households. In contrast, currency in circulation continued to grow, adding Lm3.1 million, or 0.6 per cent. The annual growth rate of M1 eased to 1.5 per cent from 3.9 per cent in June. The increase in M1 during July was accompanied by a rise of Lm1.7 million, or 5.6 per cent in savings deposits redeem-able at notice up to three months. Meanwhile, time deposits with an agreed maturity of up to two years remained broadly unchanged.

With regard to the counterparts of M3, domestic credit contracted by Lm59.2 million, or 2.1 per cent, in July. As a result, its annual growth rate fell to 0.6 per cent from 3.6 per cent in the previous month. Net claims on central government were down by Lm26.4 million, or 4.7 per cent. Banks’ holdings of Treasury bills fell as the government reduced the number of bills outstanding in the light of the concurrent bond issue.

Meanwhile, claims on other residents fell by Lm32.8 million, or 1.4 per cent. This reflected debt-restructuring by a public non-financial corporation, which took out a foreign loan and reduced its domestic borrowings. Loans to the personal sector intended for house purchases expanded further, whereas credit to a number of other sectors declined slightly.

The net foreign assets of the banking system expanded by Lm57.2 million, or four per cent, in July. On an annual basis, they rose by 2.7 per cent, after having contracted by 1.1 per cent in the 12 months to June. The net foreign holdings of the Central Bank of Malta added Lm37.2 million, or 4.6 per cent, in July, mainly reflecting purchases of foreign currency from a public non-financial corporation representing the proceeds of the foreign loan referred to earlier. At the same time, the net foreign assets of the rest of the banking system expanded by Lm20 million, or 3.2 per cent.

The rise, which was evenly split between the deposit money banks and the international banks, partly reflected the impact of seasonal receipts from tourism.

The other counterparts of M3 rose by Lm14.6 million, or 1.1 per cent, in July. Most of this increase resulted from a shift into deposits that are excluded from broad money.