Broad money (M3) increased by Lm68.4 million, or 2.1 per cent, in June, pushing up its annual growth rate to 8.5 per cent from 6.9 per cent in the previous month, the Central Bank said yesterday. Increases in domestic credit and the net foreign assets of the banking system both contributed to monetary growth.

Narrow money (M1) expanded by Lm15.6 million, or one per cent in June, as a sizeable rise in deposits withdrawable on demand, amounting to Lm25.2 million, was only partly offset by a fall in currency in circulation, which fell by Lm9.6 million. Consequently, although it remained negative, the year-on-year growth rate in M1 picked up, rising to -2.7 per cent in June, from -4.0 per cent in May.

Intermediate money (M2) surged by Lm68.4 million, or 2.1 per cent, in June, as the increase in M1 was coupled with a rise in deposits with an agreed maturity of up to two years amounting to Lm50.9 million. The increase was mainly reflected in Maltese lira-denominated deposits belonging to households, though balances in foreign currency deposit accounts belonging to private non-financial companies also rose substantially. Higher interest rates offered by banks, in response to the increase in the Central Bank of Malta’s central intervention rate in May, were a major factor behind the increase in Maltese lira denominated deposits with an agreed maturity of up to two years. Meanwhile, deposits redeemable at up to three months’ notice rose by Lm1.9 million during the month. The foreign currency deposit category within M2 rose by Lm45.1 million, as private non-financial companies reported higher balances. The increase in this category was split between transferable deposits and those with an agreed maturity of up to two years.

Regarding the counterparts of M3, domestic credit expanded by Lm79.2 million, or 2.6 per cent, in June, as both net claims on central government and claims on other residents rose. As a result, the annual rate of credit growth accelerated to 13.9 per cent from 11.8 per cent in May. Net claims on central government increased by Lm51.6 million, or 13.4 per cent, mainly on account of an increase in the Central Bank of Malta’s holdings of government securities and a rise in outstanding Treasury bills held by banks.

At the same time, claims on other residents rose by Lm27.5 million, or 1.1 per cent, mostly reflecting higher lending to households and individuals, mainly to finance house purchases.

The net foreign assets of the banking system increased by Lm16.5 million, or 0.8 per cent, in June. Consequently, their year-on-year rate of growth accelerated to 6.5 per cent from four per cent in May. During the month, the net foreign assets of the Central Bank of Malta dropped by Lm41.0 million, driven primarily by the reversal of tax inflows observed in the previous month. Net holdings belonging to the rest of the banking system grew by Lm57.5 million, boosted by capital inflows into foreign currency accounts. Higher retained earnings and a rise in revaluation reserves also contributed.

The other counterparts of M3 expanded by Lm27.3

million, or 1.5 per cent, in June, partly reflecting the increase in revaluation reserves and retained earnings mentioned above.

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.