Broad money (M3) continued to increase robustly, putting on Lm84.4 million, or 2.5 per cent, in August. As a result, its annual growth rate accelerated to 11.7 per cent from 10.0 per cent in the previous month. An increase in the net foreign assets of the banking system and a drop in the other counterparts of M3, in particular, deposits excluded from broad money, drove monetary growth during the month.

Narrow money (M1) contracted by Lm16.1 million, or 1.0 per cent, in August, nearly offsetting the previous month’s increase. In line with recent trends, and reflecting also the impact of the Special Registration Scheme, which was extended for a further month, currency in circulation fell by Lm15.2 million, or 3.8 per cent. At the same time, deposits withdrawable on demand declined marginally as an increase in foreign currency balances belonging to public non-financial companies was counterbalanced by a drop in Maltese lira deposits belonging to private non-financial companies and households. As a result, M1 fell by 2.2 per cent in the year to August, as against a drop of 1.9 per cent in the year to July.

Intermediate money (M2) surged by Lm84.4 million, or 2.5 per cent, in August as the drop in M1 was outweighed by a rise in deposits with an agreed maturity of up to two years amounting to Lm99.9 million, or 5.7 per cent. The latter was mainly attributable to increases in Maltese lira denominated deposits belonging to households and, to a lesser extent, in foreign currency balances held by private non-financial companies. Deposit growth continued to be spurred by higher interest rates offered by banks, which increased investors’ demand for such assets, and by funds deposited under the Special Registration Scheme. Overall, foreign currency deposits in M2 increased by Lm44.7 million, driven by higher balances belonging to both private and public non-financial companies.

As regards the counterparts of M3, domestic credit fell by Lm5.7 million, or 0.2 per cent, in August as a drop in net claims on central government offset an increase in claims on other residents. As a result, the annual rate of credit growth decelerated to 13.2 per cent, from 13.7 per cent in July. While the decline in net claims on central government mainly reflected lower Treasury bill holdings by banks, the increase in claims on other residents stemmed primarily from higher loans to the non-bank private sector, particularly to households – mainly to finance house purchases – and to the construction sector. Conversely, credit to the wholesale and retail trade sector and to the hotels & restaurants sector decreased.

The net foreign assets of the banking system increased by Lm59.8 million, or 2.8 per cent, in August. As a result, their annual rate of growth picked up to 8.5 per cent in August from 5.7 per cent in July. The net foreign assets of the Central Bank of Malta increased by Lm13.0 million, or 1.5 per cent, mainly reflecting privatisation proceeds. Net holdings belonging to the rest of the banking system grew by Lm46.8 million, or 3.6 per cent, boosted by an injection of share capital into one foreign-owned bank and growth in foreign currency deposits.

The other counterparts of M3 declined by Lm30.2 million, or 1.7 per cent, in August as deposits excluded from M3 contracted by Lm17.4 million. The banking system’s other net liabilities, which include accrued interest and provisions, also fell.

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.