7 - 13 June 2001

Bank deposits drive monetary expansion

Following the issue of government securities in March, which had led to a small fall in monetary aggregates, broad money, M3, expanded rapidly in April. Strong growth in bank deposits drove monetary expansion, possibly because alternative financial assets – both domestic and foreign – appeared less attractive. Both domestic
credit and the net foreign assets of the banking system increased during the month, contributing to monetary expansion.
Thus, broad money, which consists of currency in circulation and residents’ deposits with the banking system, increased by Lm60.4m.
As a result the annual rate of broad money growth jumped by over one percentage point, to 7.5 per cent.
Narrow money, M1, rose moderately, increasing by Lm4.4m, or 0.7 per cent, with currency in circulation contributing entirely to the increase. Demand deposits, the other component of narrow money, decreased slightly, as corporate current accounts declined. Reflecting these movements, the annual growth rate of M1 dropped back to 8.1 per cent, from 9.5 per cent in March.
In contrast, quasi-money resumed the robust expansion that was observed in the first two months of the year. It rose by Lm56m, or 2.8 per cent, with time deposits, which rose by Lm39m, accounting for the bulk of the increase as private firms added to their holdings of short-term deposits. Savings deposits also recovered after having contracted in March, adding Lm17m, with foreign currency deposits rising sharply.

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