FRANKFURT (MktNews) - A higher-than-expected headline growth rate for the eurozone M3 money supply in February has caused some analysts to rethink their view about the possibility of an interest rate cut at Thursday's meeting of the European Central Bank's Governing Council.
Other analysts, however, do not believe that the latest M3 figures, released Wednesday, will have any appreciable impact on the ECB's monetary policy decision-making process or on the timing of an expected rate cut. They are thus sticking with their forecasts of a near-term ECB easing move -- in some cases this week, in others on April 11.
"M3 growth was higher than we expected, but that does not change the broad picture," said Rainer Guntermann, an analyst at Dresdner Kleinwort Wasserstein in Frankfurt.
"We hold to our view that the ECB will cut rates by 25 basis points on Thursday", Guntermann said, adding however that any view of a 50 bp cut this week was probably off the cards after the M3 data.
"We no longer expect a rate cut on Thursday, since we had based that assumption on a low M3 growth rate of M3," said Commerzbank analyst Christoph Weil in Frankfurt. Commerzbank now expects the ECB to delay a cut until the April 11 Council meeting.
In general, analysts continue to expect that the ECB will act soon to lower borrowing costs in the euro area in response to a slowdown in economic growth and hints that officials are no longer as concerned about inflationary risks in the 12-nation monetary bloc.
Fabius Scacciavillani, of Goldman Sachs in London, said the latest M3 data had not changed his view that the ECB will cut interest rates by 25 basis points at the April 11 Council meeting.
"We expected M3 growth to come in at a lower rate, but the ECB will have to act in a forward looking manner," he argued.
"The ECB knows that the markets will not pay too much attention to a deviation of 0.2 or 0.3 percentage point from the reference value," Scacciavillani continued. "But certainly a rate cut on Thursday is even more unlikely now than it was before."
The unexpectedly strong growth of M3 in February was probably caused by a "flight to the safety of money market funds" from the tumbling stock markets, Scacciavillani ventured.
As reported, the eurozone annual M3 growth rate was steady in February at the unrevised 4.7% reading seen in January, exceeding market expectations (Market News survey median: 4.4%) and remaining above the European Central Bank's 4.5% reference value.
At the same time, while the key three-month average of annual M3 money supply growth rates slowed to 4.8 % for the December-February period from 4.9% for November-January (revised down from 5.0%), in line with expectations, it also remained above the ECB's reference value.
The latest M3 figures are not inconsistent with a continuation in the deceleration of money supply growth seen over the past year, but they complicate market forecasts on the timing of an ECB rate cut.
Many analysts had expected that the February headline M3 rate could fall below the ECB's reference value for the first time since the ECB assumed the monetary policy reins for the 12-nation euro area in January 1999. A corollary argument had been that M3 growth of 4.5% or less could give the ECB a strong justification for a near-term rate cut, especially as senior ECB officials had repeatedly cited decelerating M3 growth in recent comments that softened the tone of ECB inflation concerns.
Elga Bartsch of Morgan Stanley in London still expects a rate cut on Thursday, irrespective of the February M3 data.
"The falling three-month average growth rate of M3 still is an argument for the ECB to cut rates," she said, arguing that the long-term downward trend in that statistic remains intact.
"M3 growth has slowed again," she said, brushing off the steady reading in the year-on-year M3 rate in February. Moreover, there is no reason for the ECB to wait until M3 growth falls to its reference value because it may be too late for a rate cut once that happens, Bartsch argued, suggesting that the ECB may have a small window of opportunity.
Bartsch played down the 0.7% seasonally adjusted growth rate in M3 in February, although she conceded that the rise from a comparable figure of 0.2% in January was larger than she had expected. On the other hand, growth in private credit growth, while it remained strong, fell to 9.6% in February from 10.0% in January and 10.2% in December.
Moreover, the narrower M1 money supply aggregate (currency in circulation and overnight deposits) expanded strongly by E31 billion in seasonally adjusted terms in February but saw its non-adjusted growth rate remain fairly weak at 1.8% (up from 1.3% in January), Bartsch noted. Continued slow growth of M1 might point to slower economic growth in the eurozone and could lead to a rate cut this Thursday, she argued.