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ECB: annual growth rate of money/credit in the Eurozone fell in April; interest rate hikes still in frame

Financial markets generally do not see the expected quarter-percentage point rise, to 4%, in the ECB's main rate in June to be the last in the cycle.

The European Central Bank announced today that the annual rate of growth of M3 - a broad measure of money/credit in the economy - fell to 10.4% in April 2007, from 10.9% in March 2007. The three month average of the annual growth rates of M3 over the period February 2007 - April 2007 rose to 10.4%, from 10.2% in the period January 2007 - March 2007.

The so-called monetary pillar is an important indicator for the ECB as a cross-check with other data. Axel Weber, Germany's Bundesbank president and member of the ECB's Governing Council, suggested in an interview with the Financial Times, published on Tuesday, that the ECB had still some way to go in the current interest rate raising cycle.

Financial markets generally do not see the expected quarter-percentage point rise, to 4%, in the ECB's main rate in June to be the last in the cycle. Weber said the ECB did not yet see interest rates as „appropriate” or in line with price stability. „What is pretty clear at the moment is that we are in a stronger than previously expected recovery.” The ECB might even have to slam on the brakes to damp price pressures. „If necessary we also have to move into a territory that is portrayed as being restrictive, if that is needed to control inflation.”

Regarding the main components of M3, the annual rate of growth of M1 decreased to 6.2% in April 2007, from 7.0% in March. The annual rate of growth of short-term deposits other than overnight deposits declined to 12.4% in April, from 12.7% in the previous month. The annual rate of growth of marketable instruments decreased to 19.4% in April, from 19.9% in March.

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 Eurozone residents decreased to 7.5% in April 2007, from 7.7% in March. The annual rate of change of credit extended to general government was -5.6% in April, after -4.9% in March, while the annual growth of credit extended to the private sector was 10.7% in April, unchanged from the previous month.

Among the components of the latter, the annual rate of growth of loans to the private sector decreased to 10.3% in April, from 10.5% in the previous month. The annual growth rate of loans to non-financial corporations declined to 12.2% in April, from 12.4% in March. The annual growth rate of loans to households decreased to 7.6% in April, from 7.9% in the previous month. The annual rate of growth of lending for house purchase declined to 8.6% in April, from 8.9% in March.

The annual rate of growth of consumer credit decreased to 6.9% in April, from 7.1% in March, while the annual growth rate of other lending to households decreased to 3.8% in April, from 4.0% in the previous month. Finally, the annual rate of growth of loans to non-monetary financial intermediaries (except insurance corporations and pension funds) increased to 16.3% in April, from 16.0% in the previous month. (finfacts.com)