EMU: M3 Money Supply

In February 2025, the euro area witnessed a modest but broad-based strengthening in monetary dynamics. The annual growth rate of M3 rose to 4.0 percent, up from 3.8 percent in January, and the average three-month growth rate of 3.8 percent to February was driven primarily by stronger expansion in M1 (3.5 percent) and a surge in marketable instruments (19.8 percent). While short-term deposits (M2-M1) slowed to 2.0 percent, the increase in M1's contribution (2.2 percentage points) suggests a rising preference for liquidity among households and firms. Lending activity also gained traction, with adjusted loans to households and non-financial corporations rising to 1.5 percent and 2.2 percent, respectively, reflecting improved credit conditions.

On the asset side, claims on the private sector and net external assets contributed positively to M3 growth, at 2.2 and 3.1 percentage points, respectively, hinting at stronger domestic demand and favourable external balances. Household deposits edged up to 3.4 percent, while non-financial corporations' deposits rose to 3.5 percent, reinforcing stable confidence across sectors. Remarkably, deposits by investment funds surged to 8.5 percent, indicating possible repositioning toward more liquid assets. Overall, the data portrays a cautiously improving financial environment, with both money supply and credit dynamics signalling resilience amid macroeconomic uncertainties. The latest update leaves the RPI at minus 17 and the RPI-P at minus 16, indicating that economic activities remain below market expectations for the euro area economy.

Money supply growth is seen at 3.8 percent in February versus 3.6 percent in January.

M3 is the European Central Bank's (ECB) preferred broad measure of money supply. Since January 1999, the ECB has tended to focus on the 3-month moving average of the annual growth rate to judge underlying M3 trends although the significance of its 4.5 percent reference rate has been downgraded with time. The private sector lending counterpart is usually seen as the most important element of the M3 report.

While other central banks have virtually ignored money supply data, the European Central Bank has not. Thanks to the influence of the Bundesbank in organizing the ECB, M3 money supply was established as one of the 'two pillars' of monetary policy used by the ECB, the other being the harmonized index of consumer prices (HICP). While the target for HICP is two percent, the seemingly largely ignored reference target for M3 growth is 4.5 percent as measured by a three month moving average which is compared with the same three months a year earlier.

M3 measures overall money supply. It consists of M1 which is currency in circulation plus overnight deposits and M2 which include deposits with an agreed maturity up to two years plus deposits redeemable at up to three months' notice. Not all M3 measures are alike. For example, ECB M3 is approximately equivalent to the Federal Reserve's M2 measure. Because an increase in M3 leads to price inflation, this figure can also be indicative of the likelihood of future interest rate hikes.