Lucas Papademos Vice President and Jean-Claude Trichet President, of the European Central Bank

 

The annual rate of growth of M3 increased to 10.7% in May 2007, from 10.4% in April 2007. The three month average of the annual growth rates of M3 over the period March 2007 - May 2007 rose to 10.7%, from 10.4% in the period February 2007 - April 2007.

M3 is the broad measure of money/credit in the economy and is an important indicator for the Governing Council of the European Central Bank.

ECB President Jean-Claude Trichet wrote in the Financial Times last November: Do not mistake me for a monetary Luddite - I have immense appreciation for the intellectual elegance and sophistication of modern monetary policy models that leave no room for money. In many respects, I fully agree with their implications regarding the benefits of price stability, the crucial importance of central bank credibility, the advantages of pursuing a clear and predictable policy and the centrality of private inflation expectations. Such considerations have governed my own thoughts on monetary policy since I was appointed governor of the Banque de France 13 years ago. These same considerations have also strongly influenced the design of the ECB’s policy framework. Yet, I cannot dispel my doubts that a model of monetary policy that includes no role for money is incomplete in some important respects.

The rise in M3 coupled with the fall in German unemployment adjusted for seasonal swings, to 9.1% from 9.2% last month - the lowest since March 1995 - will fuel speculation of a rise in the ECB interest rate to 4.25% in September, despite the report today of a fall in retail sales.

In today's ECB report on the main components of M3, the annual rate of growth of M1 decreased to 6.1% in May 2007, from 6.3% in April. The annual rate of growth of short-term deposits other than overnight deposits increased to 13.7% in May, from 12.4% in the previous month. The annual rate of growth of marketable instruments decreased to 18.8% in May, from 19.2% in April.Turning to the main counterparts of M3 on the asset side of the consolidated balance sheet of the MFI (Monetary Financial Institutions) sector, the annual growth rate of total credit granted to euro area residents rose to 8.2% in May 2007, from 7.5% in April. The annual rate of change of credit extended to general government was -3.1% in May, after -5.6% in April, while the annual growth of credit extended to the private sector increased to 10.9% in May, from 10.7% in April.

Among the components of the latter, the annual rate of growth of loans to the private sector stood at 10.3% in May, unchanged from the previous month. The annual growth rate of loans to non-financial corporations increased to 12.6% in May, from 12.2% in April.2 The annual growth rate of loans to households decreased to 7.4% in May, from 7.6% in the previous month. The annual rate of growth of lending for house purchase was 8.6% in May, unchanged from the previous month. The annual rate of growth of consumer credit decreased to 5.9% in May, from 6.9% in April, while the annual growth rate of other lending to households declined to 3.6% in May, from 3.8% in the previous month. Finally, the annual rate of growth of loans to non-monetary financial intermediaries (except insurance corporations and pension funds) decreased to 14.5% in May, from 16.3% in the previous month.