The European Central Bank reported that money supply growth reached 3.2% in the latest reading, while lending across the eurozone is picking up speed. The figures provide a fresh look at how the region's economy is responding to the ECB's ongoing tightening campaign.
Money supply growth at 3.2%
The ECB's broadest measure of money, M3, grew at an annual rate of 3.2% in the period. M3 includes cash, overnight deposits, deposits with agreed maturity up to two years, deposits redeemable at notice up to three months, repurchase agreements, money market fund shares, and debt securities up to two years. The growth rate is a key indicator of the amount of liquidity in the financial system. A lower rate suggests that the central bank's interest rate increases are working to reduce the money supply, which can help bring down inflation.
Lending accelerates across the eurozone
At the same time, the ECB reported that lending to the private sector is accelerating. This includes loans to businesses and households. The acceleration comes despite higher borrowing costs, indicating that demand for credit remains strong. It could reflect that companies are investing and consumers are spending, or that they are seeking credit to manage higher costs. The data will be analyzed for signs of whether the economy is still growing or if the tightening is starting to bite.
ECB policy context
The ECB has been raising its key interest rates since mid-2022 to combat inflation that peaked above 10% in the eurozone. While inflation has since fallen, it remains above the ECB's 2% target. The central bank has signaled that future rate decisions will depend on incoming data. The latest money supply and lending figures are part of that data flow. Policymakers will meet later this month to decide on the next steps.
What the data means for the next meeting
The combination of moderate money supply growth and accelerating lending presents a nuanced picture. Slower money growth suggests that the tightening is having some effect, but faster lending could keep inflation elevated. The ECB will have to weigh these conflicting signals. Markets will be watching the decision closely, as any further rate hikes could slow the economy, while a pause might risk inflation staying high.
The ECB's next monetary policy meeting is scheduled for later this month. The outcome will depend on the full set of economic data available at that time.
