ECB says money supply growth eased in July
FRANKFURT (AFP) — Annual growth of eurozone money supply, a leading indicator of inflation, eased somewhat in July to 9.3 percent, the European Central Bank said on Thursday, from 9.5 percent in the previous month.
Analysts polled by Dow Jones Newswires had expected a stronger drop to 9.0 percent, but the decrease was nonetheless another sign that inflation pressure might be easing in the 15-nation eurozone.
The ECB's three-month moving average for growth in its M3 indicator, which is less volatile, also decreased to 9.6 percent in the period from May to July from 9.9 percent in the April-June period, the bank said in a telephone briefing.
The M3 measure includes cash, overnight deposits, other short-term deposits, repurchase agreements, shares and units in money market funds and debt securities with a maturity of up to two years.
Growth of loans to the private sector, another sub indicator watched closely by central bankers, fell to 9.4 percent in July from 9.9 percent in June, the ECB said, but remained at a level that belied fears of a credit crunch, Commerzbank economist Michael Schubert said.
Natixis economist Sylvain Broyer interpreted the data as an indication that the household savings rate was likely to rise.
The figures generally suggested that inflation pressures had eased a bit, and came a day after Germany said the consumer price index in Europe's biggest economy had slipped back in August, the first sign that inflation may have peaked.
ECB policymakers are watching closely however as key German wage agreements are reached, for signs that substantial pay hikes might lead to a second round of inflationary pressure.
As a result, while many analysts now forecast an ECB interest rate cut next year, they expect the main lending rate to stay at 4.25 percent throughout 2008.
UniCredit Markets economist Marco Valli said that with economic growth close to zero and headline inflation beginning to slow, the latest news of a gradual deceleration of growth in money supply and lending made it "increasingly clear that the ECB's next rate move will be down."
The bank would have to see "wage dynamics cooling and inflation close to 2.0 percent" however, well below the record 4.0 percent reached in July which is slightly more than double the ECB's target.
Broyer said that comments by ECB board members this week "suggest that a rate cut is not on the agenda before next year," and Valli said an interest rate cut "will probably happen only in mid-2009."
