30 May 2001, 15:36 FOCUS: Euro zone April M3 growth high, but will not stop ECB rate cut
---- by STUART WILLIAMS ----
FRANKFURT (AFX) - Euro zone M3 money supply growth was higher than
expected in April but should not prevent the ECB from lowering interest
rates again later in the year, economists said.
"From money supply there is certainly no danger to price stability.
The figures are no obstacle for an ECB rate cut", said Lothar Hessler
at HSBC Trinkuas. He expects the ECB to cut rates in the third quarter.
Economists said although the figures were not good news for the
ECB, interpretation of the data is complicated by distortions from
non-euro area residents holdings.
For the first time, the ECB presented data adjusted for distortions
from non-euro zone residents holdings of money market fund shares and
units. On this basis, M3 rose 4.7 pct in April, still well above the
ECB 's reference value of 4.5 pct.
Economists had forecast the adjusted M3 growth figure to slow to
4.1-4.2 pct in April.
However the ECB said presentable data from a second distortion,
non-resident holdings of money market paper and short-term debt
securities, is not yet available.
Ulla Kochwasser, economist at IBJ Research said the figures will
not stop a further rate cut, which she expects to come in June or July.
"It (the distortions) is a little confusing and gives the
impression the ECB does a little as it pleases. If it wants to cut
rates it will find a way to justify it."
The ECB has said the second distortion will be similar in magnitude
to the first and president Wim Duisenberg said on Monday the overall
distortion could amount to one percentage point.
Julian von Landesberger, economist at HypoVereinsbank said the high
growth in debt securities seen in April means the second distortion
could be even bigger.
"All in all the ECB should pay little attention to the M3 figures
themselves, although actual money supply is important", he said.
"I think the ECB should move the popular focus away from M3 towards
inflation and not to look at the actual inflation data but inflation in
18 months time", he said.
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