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Domestic credit continues to expand
Monetary aggregates in June were substantially influenced by
transactions involving corporate customers in the manufacturing
sector. The latter purchased large amounts of foreign currency
in connection with import requirements against forward sales
of foreign currency.
These swap transactions were reflected in a decline in corporate
deposits over the month and
resulted in a contraction of the net foreign assets of the banking
system. Meanwhile, domestic credit, which is the other main
determinant of monetary growth, continued to expand mainly as
a result of public sector activity.
Broad money, M3, which consists of currency in circulation and
residents’ deposits with the banking system, dropped by
Lm18m in June reversing the increase recorded during the month
of May. As a result, the annual rate of growth of M3 shed half
a percentage point,
to seven per cent. Thus, while corporate deposits contracted
sharply, mostly as a result of the transactions mentioned above,
deposits belonging to households expanded further during the
month. On the other hand, foreign currency deposits belonging
to residents decreased slightly.
Narrow money, M1, which includes the more liquid components
of broad money, fell slightly after five months of uninterrupted
growth, dropping by Lm1.6m, or 0.3 per cent. Nevertheless, the
annual rate of growth of narrow money accelerated to 7.7 per
cent from 6.8 per cent in May. Currency in circulation continued
to expand, adding Lm5.9m during the month. In contrast, demand
deposits dropped Lm7.5m, as the value of cheques in the course
of collection, which is netted from demand deposits, rose at
the end of June.
Reflecting the large payments by the corporate sector in connection
with foreign currency purchases, time deposits registered a
drop
of Lm24m, or 1.7 per cent. The corporate category accounted
for the entire fall. In contrast, savings deposits rose by Lm7.6m,
with personal deposits accounting for most of the increase.
Overall, therefore, quasi-money declined by Lm16.4m, or 0.8
per cent, with the annual growth rate dropping to 6.7 per cent
as a result.
Turning to the determinants of monetary expansion, domestic
credit continued to follow the pattern observed in recent months.
Thus, growth in net claims on government was accompanied by
a decline in claims on the private and parastatal sectors. At
the same time, however, the rise in the net foreign assets of
the banking system recorded in April and May was partially reversed.
Further economic and monetary information can be obtained from
the website of the Central Bank of Malta www.centralbankmalta.com
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