Narrow money doubles to 6%, broad
money growth rate at 7.8% in September
The Central Bank of Malta reports that broad money, otherwise known
as M3, continued to expand moderately in September as underlying credit
growth was weak and the net foreign assets of the banking system declined.
As a result, M3, which consists of currency in circulation and residents
deposits with the banking system, added Lm7.7 million. Whereas currency
in circulation and Maltese lira deposits increased, residents
foreign currency deposits declined, reversing part of the rise recorded
during the previous month. The annual rate of growth of broad money
accelerated to 7.8%, partly because M3 had fallen in September 2000,
when both the Government and the private sector had issued securities
on the primary capital market.
Narrow money, M1, continued to fluctuate sharply from month to month.
After having fallen in August, M1 rose by Lm12.9 million in September,
with the annual growth rate doubling to nearly 6%. Demand deposits recovered,
rising by Lm10.8 million as personal and corporate deposits increased,
while public sector corporations added to their deposits with the Central
Bank. Currency in circulation, which is the other component of narrow
money, resumed growth, rising by Lm2 million. The demand for cash has
been growing since the beginning of the year, possibly a reaction to
falling returns on alternative assets.
Foreign funds, quasi money
A drop in corporate savings deposits denominated in foreign currency
accounted for the Lm6.2 million drop in savings deposits in September.
The funds in these foreign currency accounts were held in connection
with a collective investment scheme launched by a major bank earlier
in the summer. When the closing date for the scheme expired, the funds
were invested directly abroad. In contrast, time deposits hardly changed
as growth in personal deposits was almost matched by a drop in those
belonging to public sector corporations. Overall, quasi-money, which
is the sum of savings and time deposits, decreased by Lm5.1 million,
with the annual growth rate remaining stable at 8.5%.
After having contracted in August, domestic credit expanded by Lm51.2
million in September, with the annual growth rate edging up to 8.9%
as a result. Claims on the private and parastatal sectors expanded by
Lm44.3 million, or 2.5%, as major banks charged six months interest
to borrowers loan accounts during the month. This rise had no
impact on monetary aggregates, but was reflected in an increase in the
net non-monetary liabilities of the banking system. Because of interest
charges, credit to almost all categories of borrower increased, with
claims on the parastatal sector and on private borrowers rising by Lm6.3
million and Lm38 million, respectively. Nevertheless, underlying credit
expansion was weak, with the annual rate of growth dropping to a ten-year
low of 4.2%.
Net claims on government
Meanwhile, net claims on government increased by Lm6.9 million, as banks
added to their holdings of Treasury bills. Since net claims on Government
had contracted in September last year, when the Government had sold
stocks to the non-bank sector, the annual rate of growth accelerated
further, to 31.8%.
Banking systems foreign assets
In September the net foreign assets of the banking system decreased
by Lm20.5 million. Those of the Central Bank rose, albeit marginally,
for the third month in succession, adding Lm2.9 million. As this increase
was considerably less than that recorded during September last year,
however, their annual growth rate dropped by over one percentage point
to 1.2%. Meanwhile, the net foreign assets of the rest of the
banking system declined by Lm23.4 million, reversing the gain of the
previous month. The net foreign assets of the domestic banks, which
accounted for two-thirds of this drop, decreased by Lm16.1 million.
In part, this drop reflected the transfer of funds abroad by a major
bank in connection with the collective investment scheme referred to