Monthly Bulletin July 2009 - Banque de France

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ECONOMIC AND MONETARY DEVELOPMENTS Monetary and financial developments Table 1 Summary table of monetary variables (quarterly figures are averages; adjusted for seasonal and calendar effects) Outstanding amount as a percentage of M3 1) 2008 Q2 2008 Q3 Annual growth rates 2008 Q4 2009 Q1 2009 Apr. 2009 May M1 44.5 2.3 0.7 2.7 5.3 8.4 7.9 Currency in circulation 7.8 7.7 7.5 12.4 13.6 13.2 13.1 Overnight deposits 36.8 1.3 -0.6 0.8 3.7 7.4 6.9 M2 - M1 (= other short-term deposits) 41.8 19.6 19.1 15.8 9.2 3.4 2.0 Deposits with an agreed maturity of up to two years 24.0 40.5 37.6 29.0 12.8 0.3 -2.8 Deposits redeemable at notice of up to three months 17.8 -2.1 -1.7 -0.5 4.5 8.0 9.3 M2 86.4 10.2 9.2 8.9 7.2 5.9 5.0 M3 - M2 (= marketable instruments) 13.6 10.4 8.9 4.1 -0.7 -1.2 -3.5 M3 100.0 10.2 9.1 8.2 6.0 4.9 3.7 Credit to euro area residents 9.7 9.1 7.4 5.9 4.4 4.0 Credit to general government -1.3 0.6 1.7 5.7 8.0 8.3 Loans to general government 0.8 2.1 2.9 2.4 1.3 1.4 Credit to the private sector 12.0 10.9 8.6 6.0 3.7 3.1 Loans to the private sector 10.5 9.1 7.4 4.6 2.3 1.8 Loans to the private sector adjusted for sales and securitisation 11.5 10.1 8.5 6.1 3.9 3.4 Longer-term financial liabilities (excluding capital and reserves) 4.4 3.3 1.2 1.8 2.3 2.6 Source: ECB. 1) As at the end of the last month available. Figures may not add up due to rounding. The annual growth rate of M1, while remaining strong, declined to stand at 7.9% in May. This may, in part, be a natural unwinding of the exceptional strengthening observed in April (when it increased to 8.4%, up from 5.9% in March; see Table 1). More specifically, the decline observed in May reflects developments in overnight deposits, the monthly flow of which turned slightly negative, following an exceptionally strong positive flow in the previous month. The monthly flow and annual growth rate of currency in circulation remained broadly unchanged. The annual growth rate of short-term deposits other than overnight deposits declined further to stand at 2.0% in May, down from 3.4% in April. Developments in the sub-components of this category of deposit continued to diverge: while the annual growth rate of deposits redeemable at notice of up to three months (i.e. short-term savings deposits) increased further in May, this was more than offset by a decline in the annual growth rate of deposits with an agreed maturity of up to two years (i.e. short-term time deposits), which turned negative for the first time since the end of 2004. In recent months developments in short-term deposits have been driven largely by remuneration considerations. In particular, available data on MFI interest rates for the period up to April indicate that the remuneration of short-term time deposits continued to decline relative to that of overnight deposits and short-term savings deposits. This explains the outflows from short-term time deposits and the relative resilience of the flows into overnight deposits and short-term savings deposits. In addition, as the remuneration of monetary assets relative to longer-term assets has now declined further, this may foster shifts out of money and into other financial assets. The annual growth rate of marketable instruments became more negative in May (standing at -3.5% in that month, down from -1.2% in April), reflecting a significant monthly outflow. As regards the sub-components of marketable instruments, the annual growth rates of money market fund ECB Monthly Bulletin July 2009 15
shares/units and repurchase agreements declined further, albeit remaining positive. By contrast, the annual growth rate of the money-holding sectors’ holdings of short-term MFI debt securities (i.e. debt securities with a maturity of up to two years) became more negative, standing at -26.5% in May. The decline in the money-holding sectors’ holdings of these securities was broadly offset by an increase in the holdings of non-residents. The annual growth rate of M3 deposits – which comprise short-term deposits and repurchase agreements and represent the broadest monetary aggregate for which a sectoral breakdown is available – declined further in May, falling to 4.4%, down from 5.4% in April. This development was relatively broadly based across the various sectors. However, this development masks the fact that, by contrast with non-financial corporations and financial intermediaries, a sizeable inflow was recorded for the M3 deposits of the household sector in May. This is consistent with some rebalancing of portfolio allocations in response to changes in the remuneration of monetary assets. M3 deposits held by non-financial corporations continued to contract in May on an annual basis. This development is in line with the broader pattern observed in recent months, with non-financial corporations drawing down their liquidity buffers in the context of the scaling down of production and, potentially, the reduced availability of funding (see Box 1 below). Finally, the annual growth rate of the M3 deposit holdings of non-monetary financial intermediaries declined further in May. Box 1 SOME CONSIDERATIONS REGARDING THE DRIVING FORCES BEHIND NON-FINANCIAL CORPORATIONS’ M3 DEPOSIT HOLDINGS The slowdown observed in annual M3 growth in recent months largely reflects developments in the M3 holdings of non-financial corporations. These only account for around 20% of the stock of M3, but as non-financial corporations are typically more active in managing their liquid resources, they can at times play a central role in shaping the dynamics of broad money. This may be particularly relevant in the context of the financial turmoil and the severe economic downturn, with considerable changes being observed in the interest rate cycle. Against this background, this box looks at the possible driving forces behind recent developments in non-financial corporations’ M3 deposit holdings (i.e. short-term deposits and repurchase agreements) from a macroeconomic perspective. 1 Non-financial corporations’ M3 deposit holdings from a longer-term perspective The annual growth rate of non-financial corporations’ M3 deposit holdings has been negative since February, standing at -1.6% in May. This reflects the relatively strong overall contraction observed in those corporations’ deposit holdings since the fourth quarter of 2008. This reduction in M3 deposit holdings is not unprecedented. Indeed, during the major cyclical downturn in the early 1990s the annual growth rate of non-financial corporations’ M3 deposit holdings remained negative in real terms for a protracted period of time (see Chart A). To put recent developments into perspective, it should also be noted that the most recent peak in M3 deposit holdings in early 2007 was the highest ever recorded during the period for which data are available. This may point to deposit holdings overshooting somewhat with regard to measures of the sector’s turnover or profitability (as illustrated, for instance, 1 M3 deposit holdings do not include currency in circulation, money market fund shares/units or debt securities with a maturity of up to two years. These are, however, included in M3 holdings. Non-financial corporations’ M3 deposit holdings account for 80% of their M3 holdings. In any case, the two series exhibit very similar patterns in terms of their annual growth rates. 16 ECB Monthly Bulletin July 2009
Page 1 and 2: EN 0712009 EUROPEAN CENTRAL BANK MO
Page 3 and 4: © European Central Bank 2009 Addre
Page 5 and 6: ABBREVIATIONS COUNTRIES LU Luxembou
Page 7 and 8: Risks to the outlook for inflation
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others also take into account the r
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exceeds the market price, a capital
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4 THE IMPACT ON GOVERNMENT BOND YIE
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yield differential to Germany despi
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5 IMPLICATIONS FOR FISCAL SUSTAINAB
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THE IMPLEMENTATION OF MONETARY POLI
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to loans with shorter maturities to
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Chart 2 Average daily reserve surpl
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In pre-turmoil times, such allotmen
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Chart 5 US dollars provided by the
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in Chart 7, which shows that lendin
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Chart A The EONIA, the euro interba
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euro-denominated covered bonds issu
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Table 1 Two-group rotation system (
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for each governor; (ii) transparenc
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Chart C The three-group rotation sy
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7. The share of each national centr
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EURO AREA STATISTICS ECB Monthly Bu
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6.3 Change in debt S57 6.4 Quarterl
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1 MONETARY POLICY STATISTICS 1.1 Co
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1), 2) 1.3 Eurosystem monetary poli
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2 MONEY, BANKING AND INVESTMENT FUN
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2.3 Monetary statistics 1) (EUR bil
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1), 2) 2.4 MFI loans, breakdown (EU
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1), 2) 2.4 MFI loans, breakdown (EU
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1), 2) 2.5 Deposits held with MFIs,
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1), 2) 2.6 MFI holdings of securiti
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2.8 Currency breakdown of selected
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2.9 Aggregated balance sheet of eur
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3 EURO AREA ACCOUNTS 3.1 Integrated
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3.1 Integrated economic and financi
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3.2 Euro area non-financial account
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3.3 Households (EUR billions; four-
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3.5 Insurance corporations and pens
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4.2 Securities, other than shares,
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4.3 Growth rates of securities, oth
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4.4 Quoted shares issued by euro ar
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4.5 MFI interest rates on euro-deno
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4.6 Money market interest rates (pe
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4.8 Stock market indices (index lev
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5.1 HICP, other prices and costs (a
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5.2 Output and demand 1. GDP and ex
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5.2 Output and demand (annual perce
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5.3 Labour markets 1) (annual perce
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6.2 Debt 1) (as a percentage of GDP
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6.4 Quarterly revenue, expenditure
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7 EXTERNAL 7.1 Summary balance of p
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7.2 Current and capital accounts (E
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7.3 Financial account (EUR billions
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7.5 Trade in goods 1. Values and vo
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8 EXCHANGE 8.1 Effective exchange r
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9 DEVELOPMENTS 9.1 In other EU Memb
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LIST OF CHARTS C1 Monetary aggregat
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Growth rates for intra-annual perio
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k) l) a t = ⎛ ⎜ −1⎟×100
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GENERAL NOTES The “Euro area stat
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EURO AREA STATISTICS General notes
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oth the marginal lending facility a
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DOCUMENTS PUBLISHED BY THE EUROPEAN
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DOCUMENTS PUBLISHED 89 “An analys
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DOCUMENTS PUBLISHED “Euro area ba
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GLOSSARY This glossary contains sel
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GLOSSARY ERM II (exchange rate mech
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GLOSSARY Investment funds (except m
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GLOSSARY is determined on the basis
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Monthly Bulletin July 2009 - Banque de France

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