The Irish Central Bank said today that during May, private-sector credit (PSC)¹ recorded its highest month-on-month increase in 2007. The rise of €5.6 billion, however, was some €1 billion lower than in the same month last year and, as a result, annual growth rates continued their downward trend.

The adjusted² annual growth rate decreased by over a percentage point to 20.9 per cent in May, compared with 22.2 per cent in April. This is the lowest annual rate of increase since February 2004.

The adjusted annual growth rate in non-mortgage credit also slowed again in May, dropping to 27.7 per cent, from 29.4 per cent in April.

There was an extremely sharp fall in the annual rate of increase in outstanding indebtedness on credit cards between April and May, from 17.1 per cent to 11.5 per cent. This was the result of a considerable rise in the level of payments received, which increased by €217 million over the month. Payments on personal credit cards increased month-on-month by 22.6 per cent, compared to a decrease in payments received on business credit cards. This would indicate that maturing SSIAs may have been the major factor behind the rise in payments received, which in turn, resulted in the largest ever fall in the level of outstanding indebtedness.

Despite falling house prices, higher interest rates, and reports of a marked reduction in housing market activity, there was a net increase of €1.5 billion in residential mortgages during May, which was above the average for the year so far. This increase, however, was over €600 million lower than in the same month last year and the annual growth rate of residential mortgages (inclusive of securitisations) continued to decline, at 20 per cent in May, from 21 per cent in April.³ This is the lowest annual growth in residential mortgages since July 2002. Total outstanding residential mortgage borrowing stood at €130.2 billion in May 2007.

Source: Central Bank and Financial Services Authority of Ireland

There were varied movements in market interest rates in May. The overnight rate dropped by 2 basis points, while the 1-month rate rose by 17 basis points. Funds provided by the Bank as part of the ECB’s monetary policy operations increased by €2.4 billion to €23.1 billion in May, with main refinancing operations accounting for all of the increase. During May, the euro depreciated by 1.1 per cent against the US dollar and by 0.4 per cent against sterling but appreciated by 0.5 per cent against the Japanese yen. Ireland's nominal harmonised competitiveness indicator (HCI)4 was virtually unchanged in May at 106.98, from 106.95 in April.

Total lending by credit institutions in Ireland to non-Government Irish residents increased by €5.6 billion, or 1.7 per cent, in May to €337.4 billion. Nearly 94 per cent of the increase was euro-denominated lending. Lending to non-bank IFSC companies increased by €523 million over the month.

The changes in the main PSC loan categories on credit institutions’ balance sheets in May were as follows:

Credit institutions in Ireland accounted for €227.8 billion of the euro-area’s broad money supply (M3) in May, a monthly increase of €6.4 billion, or 2.9 per cent. The annual rate of increase was 34.7 per cent, from 33.7 per cent in April. The month-on-month increase in the money supply was attributable to increases in deposits and money market fund shares/units, which rose by €5.2 billion and €3.4 billion, respectively. This was partially offset by a fall of €2.2 billion in debt securities with up to two years maturity.

• Overnight deposits rose by €4.3 billion;

• Deposits redeemable at notice of up to 3 months rose by €279 million;

• Deposits with an agreed maturity of up to two years expanded by €639 million.

1 The money and credit statistics are provided by all of the credit institutions authorised to carry on banking business in the State under Irish legislation as well as credit institutions authorised in other Member States of the EU operating in Ireland on a branch basis. Credit institutions authorised in other EU Member States operating in Ireland on a cross-border basis, i.e., with no physical presence in the State, are not included in the statistics.

3 The weighted average growth rates of mortgage and non-mortgage credit do not equate to the PSC growth rate because securitisations are included in calculating the adjusted growth rate for residential mortgages, but are not included in PSC.