Amount of money in circulation continues to grow
The Latvian economy demonstrating increasingly more signs of recovery and overcoming its period of recession, in April 2010 a further rise in the amount of money in circulation was observed. The money indicator M3, which characterizes the total amount of cash and non-cash currency in the economy, grew 1.8% within a month, but the annual increase of M3 reached 4.2%.
The increase in money supply in April was substantially affected by the increase in cash currency in circulation by 6.7%, fostered by the payouts of pensions withheld last year. This factor was to some extent behind the rise in domestic deposits, with the balance of household deposits in lats attracted by banks growing by 2.4% and total deposits by 1.0%. The rise both in total deposits and in the enterprise and household sector was determined by a rise in lats deposits (by 2.6%), with deposits in euro down slightly. The amount of currency in circulation was positively affected also by the rapid export growth, stabilizing of the retail turnover as well as the first downward tendencies in unemployment figures.
A few signs of improvement were observed in April also in lending. The contraction of the balance of loans granted to the private sector was smaller (-0.6%) than in the two previous months, and with the annual change in loan dynamics improving slightly for the first time in three years, the annual decrease rate in April contracted from -8.0% in March to -7.8% in April. Parallel to the growth in industrial lending observed for several months, relatively significant in April was the growth in consumer lending (+1.7%; the highest monthly indicator since the first half of 2008), which may indicate a more optimistic consumer outlook.
The exit of the economy from recession and lowering deflation will act to promote a rise in money supply in the coming months as well. Growth in lending will resume with a recovery of demand and the banks becoming convinced that the economic development in Latvia is sustainable in the long term.