On the domestic front, there is increasing evidence that monetary tightening by the ECB is gaining traction. Broad money supply growth plunged to -0.4% y/y in July, the first negative reading since 2010.
M1 growth even slumped to -9.2% y/y, which is first of all a reflection of a shift out of liquid overnight deposits into higher-yielding deposits at banks. But the weakness in the monetary aggregates is also likely to be –indirectly– related to the winding down of ECB lending to the banking sector, through repayment of TLTROs and the gradual unwind of its APP. This leads to a decline in the monetary base (and less excess liquidity in the money market).
This stands in contrast to 2018-19, when broad money kept growing despite a (modest) fall in base liquidity (figure 2). Moreover, these data fit with the recent ECB Bank Lending Survey, which showed business loan demand reaching its lowest level since the survey began in 2003. - Rabobank
留言