A e122.1 million drop in deposits with an agreed maturity of up to two years was registered in April, with around two-thirds of this drop reflecting a contraction in balances belonging to local residents, mainly households and private non-financial companies.

As a result, the year-on-year growth rate of such deposits belonging to Maltese residents continued to fall, reaching -3.8 per cent in April, from -3 per cent one month earlier. Meanwhile, deposits redeemable at up to three months’ notice fell marginally.

According to Monetary Statistics for April 2009 issued by the Central Bank of Malta, despite the expansion in M1, intermediate money (M2) declined further in April, falling by e48.7m, or 0.6 per cent, on March.

On aggregate, deposits belonging to local residents contracted by e2.1 million in April, with the consequence that their annual growth rate decelerated to -0.6 per cent, from -0.2 per cent in March. This slowdown partly reflects a base effect as residents’ deposits had increased exceptionally strongly during the run-up to the euro changeover during the 12 months to April 2008. However, a shift into deposits with terms to maturity exceeding two years following the launch of new products by resident banks, as well as the issue of securities by the Treasury and the private sector during the month, also contributed.

On the counterpart side, credit to residents of Malta expanded by e133.2 million. Lending to the Maltese general government sector by resident MFIs rose by e109.4 million, as MFI holdings of Treasury bills and Malta Government Stocks increased. As a result, the year-on-year rate of growth of credit granted to general government picked up substantially, rising to 20.8 per cent from 11.2 per cent in March. At the same time, credit to other Maltese residents expanded by e23.8m, or 0.3 per cent, mainly owing to additional loans taken up by households and non-financial companies. In turn, this was due to increased lending to households – predominantly to finance house purchases –the hotels and restaurants sector and to the real estate, renting and business activities sector. In contrast, lending to the construction sector and the wholesale and retail sector fell. The annual rate of growth of credit to Maltese residents overall slowed down to 11.9 per cent in April, from 12.2 per cent in March.

In contrast, credit to residents of other euro area member states declined. Thus, overall credit to euro area residents contracted by e338.1 million, or 2.7 per cent, in April as increased credit to general government was outweighed by a drop in credit to other sectors.

The external counterpart of M3 declined by e1,314.7 million, or 20.3 per cent, in April as resident MFIs’ claims on non-euro area residents decreased while their liabilities to them rose substantially. Specifically, on the assets side, resident MFIs reduced their deposits with credit institutions outside the euro area and also cut down on the amount of loans granted to them. Meanwhile, on the liabilities side, time deposits belonging to private non-financial companies resident outside the euro area as well as loans taken up by resident banks from non-euro area credit institutions increased considerably.

As regards movements in other counterpart balances, these mainly reflect interbank transactions across the euro area. In April these balances contracted by e1,604.3 million, or 15.5 per cent. This mainly reflected a drop in time deposits belonging to euro area credit institutions and a decline in loans taken up by resident banks from them. An increase in resident credit institutions’ time deposits held with other euro area banks also contributed.

Meanwhile, weighted average interest rates applied by resident credit institutions to customer deposits and loans declined during the month. Thus, the weighted average deposit rate declined by nine basis points to 2.03 per cent while the corresponding lending rate fell by a mere basis point, reaching 4.48 per cent.

The Maltese contribution to the euro area broad money stock (M3) contracted by e48.5 million, or 0.6 per cent, in April, compared to the previous month, reaching e8,537.3 million. As a result, the annual rate of growth of M3 declined to -1.9 per cent in April from -1.1 per cent in March.

Narrow money (M1) increased by e74.7 million, or 1.9 per cent, during the month, driven by a rise in overnight deposits that amounted to e71.4 million. In particular, deposits belonging to local residents increased by e78.8m, or 2.4 per cent, on the preceding month. Currency issued also increased slightly during the month. Nevertheless, the annual rate of growth of M1 edged down from 3.5 per cent in March to 2.9 per cent in April.