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Net foreign assets continue to fall
Rapid monetary growth resumed in January and was driven mainly
by the government’s financing needs, which boosted domestic
credit. The net foreign assets of the banking system, in fact,
continued to fall.
The net foreign assets of the banking system continued to decline,
this time by Lm17.8 million, or 1.8 per cent. The annual growth
rate edged up to 1.3 per cent, however, as there had been an
even larger drop in January 2000. The net foreign assets of
the monetary authorities contracted by Lm13.4 million, or 2.1
per cent in January.
This mainly reflected Central Bank sales of foreign exchange
to the banks, partly to meet their customers’ requirements
and partly to enable them to replenish their foreign currency
portfolios. Nevertheless, despite these transactions, the net
foreign assets of the rest of the banking system dropped by
Lm4.5 million, or 1.4 per cent. The net foreign assets of the
international banks, which decreased by Lm4 million, accounted
for almost the entire fall.
Broad money, M3, which consists of currency in circulation and
residents’ deposits with the banking system, grew rapidly
in January, adding Lm32.9 million, or 1.3 per cent. The annual
rate of growth, which had dropped to four per cent in December,
rose to 5.3 per cent as a result.
Following a four-month decline, narrow money, M1, rebounded
in January, expanding by Lm12.4 million, or 2.1 per cent, with
the annual growth rate rising by over four percentage points
to 6.9 per cent. Demand deposits accounted for the entire increase,
rising by Lm12.5 million as new deposits were made by households
and private firms. Currency in circulation, the other component
of narrow money, was unchanged.
Quasi-money, which rose by Lm20.6 million in January, accounted
for nearly two thirds of the overall increase in M3. In turn,
time deposits, which added Lm19.5 million, or 1.5 per cent,
accounted for almost the entire rise in quasi-money. The increase
in time deposits was reflected in almost all the main categories
of depositors including
Domestic credit, which grew by Lm22.7 million, or one per cent,
was the principal driving force behind monetary expansion during
the month.
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