PARIS (AFX) - Euro zone May money supply data will show adjusted M3 growth running slightly above the European Central Bank's 4.5 pct reference value, economists said.
The ECB uses the reference value as a benchmark for M3 growth, but a May growth figure slightly above the reference mark will not prevent the central bank from cutting rates soon, economists said. Even the adjusted figures do not paint a full picture of M3 growth and the ECB clearly sees no inflation risk from monetary developments at present, they said.
"Clearly, the ECB is flagging an easing bias in its analysis of its first pillar of monetary policy. As soon as the second pillar shows disappearing upside inflation risks there will be leeway for more rate cuts," said Adolf Rosenstock of Nomura.
The ECB assesses inflation risks under a "two pillar" monetary policy, examining monetary growth under the first pillar and a range of other pointers to future inflation under the second pillar of the policy.
In a poll of 17 economists by AFX News, respondents forecast an adjusted May M3 growth rate of 4.4-4.9 pct, with 14 of the 17 forecasting a rate in excess of the 4.5 pct reference value.
The average year-on-year rise for the three month period from March to May is expected to come in at 4.5-4.7 pct, compared with 4.6 pct in the February-April period.
No date is set for the figures, but they are usually released around the 20th business day of the month and are therefore expected this week.
The figures exclude non-residents' holdings of shares and units in money market funds. The ECB says the inclusion of these holdings distorted M3 growth upwards by around 0.5 percentage points in recent months, prompting it to release adjusted figures.
The ECB is also continuing to publish unadjusted M3 figures. In May unadjusted M3 growth is expected to be around 0.5 percentage points above the adjusted figure, economists said.
If this is taken into account, fully adjusted M3 growth is therefore likely to be running slightly below the ECB's reference value, economists said.
And it is such estimates of fully adjusted M3 growth that the ECB governing council appears to be focussing on in its assessment of inflation risks and in its interest rate decisions.
ECB president Wim Duisenberg said the council took account of evidence on both distortions when it cut interest rates on May 10, so it is unlikely that the publication of precise figures for the second distortion will prompt a further easing move, unless it turns out to be much greater than the original estimate.
But the ECB is clearly saying that monetary growth will not stand in the way of a further easing move, economists said. Downward revisions to economic growth forecasts are likely to trigger the rate cut, which could come at the next ECB council meeting on May 5, they said.
Duisenberg said after the last council meeting: "We are satisfied that from the monetary side we see at the moment no danger for price stability."
And Nomura's Rosenstock said the comment in the June ECB monthly bulletin that the M3 figures point to "a favourable outlook for price stability over the medium term" shows that the ECB now has an easing bias.
Significantly, the ECB also changed its tone on bank lending in the June bulletin, which marks a further downward revision in its assessment of inflation risks, economists said.
It said strong growth in loans to the private sector no longer represents a risk to price stability, arguing that much of the increase is the result of special factors which will not boost consumer spending and inflation.
Even so, growth in credit to the private sector is expected to remain strong at 8.9-9.2 pct year-on-year in May, compared with 9.0 pct in April.