Broad money continues recovery

Broad money (M3) in May continued to recover modestly, rising by Lm3.3 million or 0.1 per cent compared to April, the Central Bank said.

The annual rate of monetary growth remained sluggish but reverted from 0.2 per cent in April to 0.6 per cent during the month under review.

Compared with the previous month, both domestic credit and net foreign assets of the banking system declined.

However, the net foreign assets did contribute to monetary expansion as the decline was mainly due to a transaction involving the repatriation of profits by a financial institution. This led to a drop in the other counterparts of M3 and thus had no impact on broad money.

The Central Bank said that narrow money (M1) expanded by Lm16.5 million, or one per cent, in May, mostly as a result of an increase in deposits withdrawable on demand. Currency in circulation also rose.

As a result, the annual growth rate of M1 picked up, rising to 3.1 per cent from 0.9 per cent in April.

Intermediate money (M2) grew at a marginal rate of 0.1 per cent, that is by Lm3.3 million, in May, since higher M1 was largely offset by a contraction in deposits with an agreed maturity of up to two years.

The latter was attributable to a reduction in Maltese lira balances, which was partly offset by a rise in foreign currency deposits. Overall, deposits with an agreed maturity of up to two years shed Lm13.1 million, or one per cent, during the month and 2.4 per cent on an annual basis.

As for the counterparts of M3, domestic credit declined by Lm2.4 million, or 0.1 per cent, in May.

The annual growth rate remained virtually stable at 4.1 per cent. Net claims on central government decreased by Lm8.1 million, mainly as a result of a drop in the amount of Treasury bills held by the banking sector, which outweighed higher bank holdings of government stocks following the primary market issue that took place during the month.

In contrast, claims on other residents rose by Lm5.7 million mainly on account of an increase in loans to households, used primarily for the financing of house purchases. Loans to most of the other categories of borrower, particularly construction and the transport, storage and communication sector, decreased.

The net foreign assets of the banking system contracted by Lm7.7 million, or 0.5 per cent, in May although this was entirely due to a fall in the holdings of the international banks, the Central Bank said.

In fact the net foreign assets of the Central Bank and the deposit money banks showed a notable rise over the month.

On an annual basis the net foreign assets of the banking system declined by 2.6 per cent, compared with a drop of 3.5 per cent in the 12 months to end-April.

Over the month, the net foreign assets of the Central Bank rose by Lm4 million, or 0.5 per cent, while those of the deposit money banks rose by Lm8.0 million or 2.1 per cent .

On the other hand, the net foreign assets of the international banks declined by Lm19.7 million, mostly as a result of the repatriation of profits. This also contributed to a drop in the other counterparts of M3, which decreased by Lm13.4 million, or one per cent.