Broad money grows steadily in December

Provisional data for December 1999 indicate that broad money, M3, continued to grow steadily during December. As a result, the annual growth rate remained stable at 9.8 per cent. Domestic credit was the principal determinant of monetary expansion as the net foreign assets of the banking system contracted over the month.

Narrow money, M1, accelerated in December, expanding by Lm15.7m and pushing the annual growth rate to 10.6 per cent, from 7.8 per cent in November.

Currency in circulation rose by Lm6.6m, the largest increase during the year, possibly because concerns about the millennium changeover fuelled the demand for cash. Demand deposits increased by Lm9.1m, driven mainly by corporate deposits.

In contrast, the annual rate of growth of quasi-money slowed down in December. In absolute terms, it grew by Lm14.1m during the month. Savings deposits, which were boosted by annual interest payments, expanded by Lm11.8m and accounted for almost all this increase.

With regard to the determinants of monetary growth, domestic credit expansion accelerated in December, pushing the annual growth rate up from 8.9 per cent in November to 9.6 per cent. Increased claims on the private sector, which expanded by Lm22.6m, accounted for the overall credit growth during the month. Credit to most categories of borrower increased, in particular credit to the personal and tourism sectors.

Meanwhile, net claims on government, which had fallen because of privatisation receipts in November, increased by Lm4.9m in December as the government drew on its deposits with the Central Bank.

As noted above, the net foreign assets of the banking system contracted in December, by Lm9.6m. As a result the annual rate of growth decelerated further, dropping by almost two percentage points to 8.4 per cent.

While the holdings of the Monetary Authorities fell by Lm2.6m, it was a drop in the net foreign assets of the rest of the banking system which accounted for most of the overall reduction. The latter contracted by Lm7m, as a reduction in the net foreign assets of the international banks offset a small increase in those of the deposit money banks.

Other items (net), which consist of the non-monetary liabilities of the banking system - such as capital and reserves - minus their "other assets", fell for the third month in a row. This was partly because of a decrease in interest accrued and unpaid that was reflected in the increase in savings deposits referred to earlier.

Further economic and monetary information can be obtained from the website of the Central Bank of Malta www.centralbankmalta.com