Data adjusted for non-eurozone resident holdings of money market shares/units, but not for non-eurozone resident holdings of money market paper and securities with a maturity of less than two years. ECB estimated that the latter distorted M3 by about 0.75 percentage point.

July results: +6.4% y/y
+5.9% 3-month average y/y
+8.2% private sector credit growth
MNS survey median: +6.1% y/y
+5.8% 3-month average y/y
MNS survey range: +5.8% to +6.5% y/y
+5.7% to 5.9% 3-month average y/y
June results: +6.1% y/y (unrevised)
+5.3% 3-month average y/y (unrevised)
+8.4% private sector credit growth (unrevised)

FRANKFURT (MktNews) - The eurozone M3 12-month growth rate again rose strongly in July to 6.4% y/y, a rate at the high end of forecasts, from 6.1% in June, according to data released Tuesday by the European Central Bank.
This pushed the 3-month moving average year-over-year rate -- the key rate for the ECB -- to 5.9% from 5.3% in June.
The ECB said in its initial release that the flat yield curve and recent stock market weakness may have contributed to the acceleration in M3 growth in July. The ECB again estimated that the distortion caused by foreign holdings of money market paper and debt securities with a maturity of less than two years -- which have risen sharply due to investor uncertainty -- may have pushed up M3 by about 0.75 percentage point.
Still, adjusting for this distortion, the M3 3-month y/y growth rate stands at about 5.1%, above the ECB's 4.5% growth reference rate for this year.
Thus, the money supply data could dampen strong speculation that the ECB will cut interest rates at its meeting on Thursday.
Additional data provided by the ECB in a footnote is even more sobering, suggesting that fully adjusted M3 is even further above the reference rate.
Using 2000 money supply data for the EMU-11 plus Greece, instead of simply EMU-11 data, the non-seasonally adjusted year-over-year growth rate for M3 rose to 6.4% in July, up from 6.3% in June, while the three-month year-over-year average rose to 6.1% from 5.5%.
Moreover, the prospect remains M3 will rise further in coming the months due to unfavorable base effects. This could push the headline 3-month moving average above 6% after the weaker May figure (+5.2% y/y) drops out of the year-over-year calculation; this could leave the M3 3-month rate a full percentage point above the reference value even after adjusting for all market-related distortions.
M3 growth has now accelerated five months in a row, with the annual rate well up from 4.4% in February. The 6.4% y/y growth rate was the highest since March 2000.
A breakdown of the M3 components makes clear that the broad monetary aggregate rose in large part due to portfolio shifts in the aftermath of increased uncertainty in the financial markets.
While the annual rate of currency in circulation fell sharply (-6.4% y/y) because of the nearing introduction of euro-denominated notes and coins, the rate for marketable instruments rose to 18.8% in July from 17.3% in June. This rise was driven by higher (non-adjusted) annual growth of both money market shares/units and money market paper (+7.7% compared with +7.4% in June) and debt securities with a maturity of 2-years or less (+83.5% in July from 57.9% in June).
Even more telling when highlighting the importance of portfolio shifts is the fact that adjusted marketable instruments rose by E20 billion, or 2.4%, in July compared to June. Overall, M3 expanded by 0.7%, or E37 billion, on the month.
Among the counterparts of M3, growth in credit to the eurozone private sector decreased to 8.2% y/y from 8.4% (unrevised) y/y in June, the ninth consecutive decline and well down from double-digit growth as recently as January. In absolute terms, this category rose only by 0.2% m/m, underlining the declining dynamic, although the level of credit growth is still high for the current economic situation. Private credit growth is regarded as the component that can cause the most inflationary pressure, as it translates quickly into real demand.
An increase of M3 caused by portfolio shifts is less likely to exert inflationary pressures and could be the starting point for lower M3 growth later on, once portfolios are readjusted after a calming of financial markets. Still, the increased figure will be ammunition for those observers urging caution, as nobody can say for sure which component of M3 will finally fuel demand.