Broad money (M3) expanded by Lm26.1 million, or 0.8 per cent, in November, causing its annual growth rate to accelerate to six per cent from 5.3 per cent in October. Monetary expansion was driven by higher domestic credit, but was partly dampened by a contraction in the net foreign assets of the banking system and a rise in the other counterparts of M3.

Narrow money (M1) increased by Lm7.9 million, or 0.5 per cent, in November, fuelled by a rise in deposits withdrawable on demand, mostly denominated in foreign currency.

Such deposits expanded by Lm14.5 million, or 1.2 per cent, mainly reflecting higher corporate balances. In contrast, currency in circulation declined by Lm6.6 million, or 1.4 per cent. The annual rate of growth of M1 increased for the second month in a row, rising to 1.7 per cent in November from 1.3 per cent in the previous month.

The rise in M1 was coupled with a significant rise in deposits with an agreed maturity of up to two years, which added Lm17.6 million, or 1.2 per cent, in November. In particular, Maltese lira deposits belonging to households increased. At the same time, deposits redeemable at up to three months’ notice rose marginally. As a result, intermediate money (M2) went up by Lm26.1 million, or 0.8 per cent, during the month.

With regard to the counterparts of M3, domestic credit expanded by Lm52.4 million, or 1.9 per cent in November, as both net claims on central government and claims on other residents rose considerably. Consequently, on a year-on-year basis, domestic credit growth surged to 8.1 per cent, from 5.8 per cent in October. Net claims on central government increased by Lm27.4 million, or 7.9 per cent, entirely reflecting a rise in Treasury bills held by banks. Meanwhile, a Lm25 million, or 1 per cent, rise in claims on other residents stemmed entirely from the non-bank private sector, and was mostly driven by higher lending to households – mostly to finance house purchases – and to the transport, storage and communication sector. Increased credit to the hotels and restaurants sector and to the real estate, renting and business activities sector also contributed.

In November, the net foreign assets of the banking system contracted by Lm5.1 million, or 0.2 per cent. Nonetheless, given a more pronounced drop in November 2005, their annual rate of growth accelerated to 19.6 per cent from 19.3 per cent in October.

The drop in net foreign assets in November was attributable to a decline in the Central Bank of Malta’s net holdings, which contracted by Lm21.9 million as a result of sales of foreign exchange to banks and payments on behalf of the Government. Conversely, the net foreign assets of the deposit money banks and the international banking institutions expanded by Lm9.9 million and Lm6.9 million respectively.

The other counterparts of M3 expanded by Lm21.2 million, or 1.2 per cent, in November, partly because the banks’ other liabilities and retained earnings 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.