Broad money increased strongly for the second consecutive month in July, adding Lm72 million, or 2.1 per cent. As a result, its annual growth rate accelerated to 10 per cent from 8.6 per cent in the previous month. An increase in the net foreign assets of the banking system and in domestic credit, mainly reflected in higher net claims on the government, drove monetary growth.

Narrow money increased by Lm16.2 million, or one per cent in July. Deposits withdrawable on demand put on Lm39 million – with corporate balances increasing significantly – and outweighed a drop in currency in circulation, which fell by Lm22.7 million. Consequently, although it remained negative, the year-on-year growth rate in narrow money continued to recover, rising to –1.9 per cent in July, from –2.7 per cent in June.

Intermediate money surged by Lm72 million, or 2.1 per cent in July, as the increase in narrow money was coupled with a rise in deposits with an agreed maturity of up to two years amounting to Lm53.2 million. The latter was mainly attributable to an increase in Maltese lira-denominated deposits belonging to households, which continued to respond to rising interest rates being offered by banks on such instruments. Deposits redeemable at up to three months’ notice rose by Lm2.5 million during the month. Meanwhile, foreign currency deposits in intermediate money increased by Lm6.6 million, mostly on account of higher balances belonging to private non-financial companies.

As regards the counterparts of broad money, domestic credit expanded by Lm20.6 million, or 0.7 per cent, in July. Net claims on central government accounted for almost the entire rise. The annual rate of credit growth slowed down however, falling to 13.7 per cent, from 13.9 per cent in June. The rise in net claims on the central government mainly reflected an increase in the Central Bank of Malta’s holdings of government securities and a drop in government deposits with the bank. At the same time, claims on other residents increased by Lm3 million, or 0.1 per cent, reflecting higher credit to the non-bank public sector. Private sector credit declined marginally during the month, as increased lending to households, primarily to finance house purchases, and to the real estate, renting and business activities sector was offset by a drop in loans to the transport and communications sector, the construction sector and the wholesale and retail trades.

In July, the net foreign assets of the banking system increased by Lm44.3 million, or 2.1 per cent. The annual growth rate however, dropped slightly to six per cent from 6.5 per cent in June. The net foreign assets of the Central Bank of Malta dipped by Lm3.5 million, or 0.4 per cent, reflecting foreign currency sales to banks. At the same time, net holdings belonging to the rest of the banking system grew by Lm47.8 million, or 3.8 per cent, boosted mainly by foreign currency inflows related to the sale to non-residents, of shares in a private corporation and proceeds from the privatisation of a transport company.

The other counterparts of broad money declined by Lm7.1 million, or 0.4 per cent, in July, as a drop in the “other net liabilities” of the banking system outweighed an increase in deposits excluded from broad money.

Narrow money includes currency in circulation, demand deposits and savings deposits withdrawable on demand.

Intermediate money comprises narrow money, savings deposits redeemable at notice and time deposits with an agreed maturity of up to and including two years.

Broad money comprises intermediate money, 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.