Broad money rose by Lm4.3 million, or 0.1 per cent, in October but its annual growth rate slowed down to 11.6 per cent from 12.3 per cent in the previous month, the Central Bank said. An increase in net claims on the central government was the main factor driving monetary growth during the month.

Narrow money declined by Lm27.2 million, or 1.7 per cent, in October, as a sizeable drop in currency in circulation was coupled with a reduction in deposits withdrawable on demand. While the former reflected falling demand for cash in the face of the imminent euro changeover, the latter was mainly driven by a contraction in Maltese lira balances belonging to non-financial companies. Consequently, the annual growth rate of narrow money fell to -3.8 per cent in October from -1.8 per cent in September.

Intermediate money increased by Lm4.3 million, or 0.1 per cent, in October, as deposits with an agreed maturity of up to two years expanded by Lm30.3 million. The latter stemmed primarily from a rise in Maltese lira deposits belonging to households and insurance companies. Deposits redeemable at up to three months’ notice also rose during the month. However, foreign currency deposits classified under intermediate money declined.

As regards the counterparts of broad money, domestic credit expanded by Lm46.4 million, or 1.5 per cent, in October. Nevertheless, the annual rate of credit growth slowed down slightly, falling to 13.2 per cent from 13.4 per cent in September. After having contracted in the previous month, net claims on the central government expanded by Lm40.3 million, or 9.6 per cent, mainly reflecting increased bank holdings of Treasury bills and Malta Government stocks.

The latter followed primary market developments, with credit institutions taking up slightly more than half of the amount issued in October. The rise in claims on other residents was mainly attributable to increased credit to households – mostly to finance house purchases – and to the construction sector. In contrast, lending to the wholesale and retail trade sector and to the hotels and restaurants sector fell. As a result, the annual rate of growth of credit to other residents continued to moderate, falling to 10.4 per cent from 11.1 per cent in September.

The net foreign assets of the banking system contracted by Lm4.1 million, or 0.2 per cent, in October. As a result, their annual rate of growth dropped to 10.1 per cent, as opposed to 11.2 per cent in September. The net foreign assets of the Central Bank of Malta declined by Lm21.4 million, or 2.4 per cent, mostly due to the reversal of temporary inflows associated with the operations of companies engaged in international business. The net holdings belonging to the rest of the banking system, however, expanded by Lm17.3 million, or 1.2 per cent, boosted by growth in revaluation reserves and retained earnings.

The other counterparts of broad money expanded by Lm38.0 million, or 2.0 per cent, in October, driven primarily by the rise in revaluation reserves and the increase in retained earnings.

Definitions:

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