Money in circulation continued to grow in February
After a slight seasonal decrease in the first month of the year, the growth of money in circulation resumed in February 2010, with the majority of monetary indicators exceeding even the seasonally high December level. Money indicator M3, which characterizes the total cash and non-cash amount of money in the economy, increased by 2.4%, whereas the rate of M3 annual change declined from -2.3% in January to -0.7% in February.
The improvement in both consumer and entrepreneur confidence, along with stabilization tendencies in retail turnover, rise in exports as well as stability in the domestic financial market promoted a rise both in domestic deposits (by 2.0%), and demand for cash currency (by 2.1%).
The rise in deposits, both overall and in the business and household sector, was determined by an increase in lats deposits (5.5%) while deposits in euro declined somewhat (by 1.0%). The annual growth rate of domestic deposits continued to rise, reaching 2.6% by the end of February, i.e. banks had attracted funds that exceeded previous year’s level by 134 million lats.
Bank attitude towards lending remained cautious, and the demand for loans was rather low, therefore the balance of loans granted to the private sector in February continued to decline at a moderate rate (by 0.7%). In some spheres, however, the declining trend in lending has come to an end - as a potential encouragement for business activity one should note the ever more pronounced growth of the industrial loan portfolio (by 0.8% in February), which was observed even year-on-year.
A continued stabilization of the economy, export growth and inflows of foreign financial resources will contribute to a resumed positive growth in overall money supply, particularly with the amount of deposits attracted by banks growing. One of the factors that could help to motivate the banks to direct more of the resources available to them toward economic development, is the Bank of Latvia's decision to reduce the interest rate on the marginal deposit facility from 1% to 0.5% as of March 24.