Monetary statistics for August 2009

Monetary statistics for August 2009 issued by the Central Bank of Malta show that the Maltese contribution to the euro area broad money stock (M3) increased by EUR15.1m in August, compared to the previous month, reaching EUR8,622.4m. This notwithstanding, the Maltese contribution to euro area M3 was 1.2 per cent lower than the year ago level. In the previous month the year-on-year decline was less pronounced at 0.9 per cent.

The narrow money (M1) component of the Maltese contribution increased by EUR43m, or one per cent, during the month, driven by a rise in overnight deposits. These grew by EUR39.8m, or 1.1 per cent, mostly on account of higher balances belonging to Maltese households. In contrast, overnight deposits belonging to other euro area residents declined. Meanwhile, currency issued expanded by EUR3.1m, or 0.5 per cent, in August. On an annual basis, the rate of growth of M1 climbed to 8.6 per cent from 7.1 per cent in July.

The rise in M1 led to an increase in the intermediate money (M2) component of EUR11.6m, or 0.1 per cent, in August, despite a drop in short-term deposits. Thus, deposits with an agreed maturity of up to two years fell by EUR31.5m, or 0.7 per cent, with the local resident category, particularly those of households, declining significantly. As a result, the year-on-year contraction in deposits with an agreed maturity of up to two years belonging to Maltese residents persisted, with a negative growth rate of -9.3 per cent in August, compared with

-6.2 per cent in July. In contrast, deposits redeemable at up to three months’ notice rose marginally.

In aggregate, deposits belonging to local residents fell by EUR26.5m in August. Consequently, their annual growth rate turned negative, dropping to -0.8 per cent from a positive 0.2 per cent in July. This drop in residents’ deposits was partly due to the purchase of securities by households following a large primary issue of stocks by government during the month. However, as has been observed in recent months, the shift in resident deposits from short-term to overnight continued, demonstrating the fact that, in the prevailing environment of extremely low interest rates, the opportunity cost of holding the most liquid monetary assets is significantly reduced.

Credit to residents of Malta expanded by EUR69.6m in August, with the increase being due to borrowing by the general government sector. This rose by EUR79.9m, or 4.2 per cent, as MFI holdings of both Treasury Bills and Malta Government Stocks increased. In contrast, credit to other Maltese residents contracted by EUR10.3m, or 0.1 per cent, though lending to households registered an increase. The contraction in credit to the corporate sector was observed across various sub-sectors, in particular, the wholesale and retail trade sub-sector, the real estate, renting and business activities sub-sector and the transport, storage and communications sub-sector. Lending to the household sector, mostly to finance house purchases, remained fairly buoyant, with an increase of 0.7 per cent on the

previous month. On an annual basis, bank borrowing by Maltese residents rose to 11.9 per cent in August from 10.2 per cent in July. With credit to residents of other euro area Member States increasing by EUR60.9m over the month the overall increase in credit to euro area residents climbed to EUR130.5m in August.

The external counterpart of M3, which reflects transactions between banks resident in Malta and non-euro area residents, rose by EUR444.7m, or 6.8 per cent, in August, as a result of a combination of a surge in claims on non-residents of the euro area and a reduction in liabilities to them. While the former mainly reflected a rise in deposits held with banks outside the euro area and increased holdings of securities issued by non-euro area governments, the latter was primarily driven by a drop in time deposits belonging to non-euro area banks and non-bank financial

intermediaries.

The “other” counterparts of M3, reflecting mainly interbank transactions across the euro area, increased by EUR560.1m, or 5.6 per cent, in August as other net liabilities rose considerably due to a sharp drop in assets.

With regard to interest rate levels, the weighted average interest rate applied by resident credit institutions to customer deposits decreased by 10 basis points to 1.67 per cent during the month, while the weighted average interest rate charged on loans remained unchanged at 4.48 per cent.