Broad money (M3) continued to expand in June, rising by Lm18.8 million, or 0.6 per cent, the Central Bank of Malta said in a statement covering June. Nonetheless, its annual growth rate decelerated to 3.6 per cent from 4.7 per cent in May. Monetary growth stemmed from a further expansion in credit to the non-bank private sector, which offset the impact of a contraction in the net foreign assets of the banking system.

Narrow money (M1) contracted by Lm6.4 million, or 0.4 per cent, in June, due to a drop in deposits withdrawable on demand. These fell by Lm6.8 million, or 0.6 per cent, with foreign currency deposits accounting for the entire decrease. Overall, deposits belonging to insurance companies & pension funds and public non-financial companies registered the largest decline. Meanwhile, currency in circulation increased by 0.1 per cent. The year-on-year growth in M1 decelerated in June, falling to 2.0 per cent from 4.4 per cent in May.

In contrast, intermediate money (M2) expanded significantly, as deposits with an agreed maturity of up to two years increased by Lm28.2 million, or 2.1 per cent. The rise was mainly fuelled by growth in Maltese lira deposits belonging to households and to insurance companies & pension funds. A factor contributing to the expansion in such deposits was the increase in deposit interest rates offered by credit institutions. At the same time, deposits redeemable up to three months’ notice fell by Lm3.0 million, or 8.8 per cent.

With regard to the counterparts of M3, domestic credit expanded by Lm19.4 million, or 0.7 per cent in June. Consequently, its annual growth rate edged up to 0.6 per cent from 0.5 per cent in May. The rise in domestic credit stemmed from claims on other residents, which went up by Lm23.0 million, or 1.0 per cent, reflecting higher loans to the non-bank private sector.

In particular, credit to households – primarily for house purchases – and the construction sector increased. On the other hand, net claims on central government fell by Lm3.7 million, or 1.0 per cent, almost entirely reflecting a drop in Treasury bill holdings by the banking sector as the amount of new issues of Treasury bills by the Government fell short of bills redeemed.

In June the net foreign assets of the banking system contracted by Lm32.8 million, or 1.6 per cent. As a result, their annual growth rate slowed down to 22.9 per cent from 27.9 per cent in May. Whereas the net holdings of the Central Bank of Malta went up by Lm5.1 million, those of the rest of the banking system dropped by Lm37.9 million. International banks accounted for the bulk of the fall, with their net holdings declining by Lm22.8 million, or 4.0 per cent, primarily on account of a drop in their equity base as a result of movements in their internal reserves. At the same time, the holdings of deposit money banks dipped by Lm15.2 million, or 2.9 per cent, reflecting mainly the reduction in residents’ foreign currency deposits.

The other counterparts of M3 contracted by Lm32.3 million, or 2.0 per cent, in June mainly reflecting the decline in the international banks’ equity base referred to earlier. However, a drop in deposits excluded from M3 also contributed.