23.12.2009.

Money in circulation posts a slight increase

For the first time in the last seven months money in circulation has registered a rise in November: money indicator M3 has increased 1.0%. This has been the effect of stabilizing financial markets, supplementary foreign lender financing flowing into the country and the government gradually increasing the budget expenditure as the end of the year approaches. The rise in domestic deposits was quite substantial (1.1%), with the demand for cash continuing to decrease. The drop in loans granted to the private sector equalled that of the previous month (at -0.6%), still pointing to the low domestic demand and characterizing the bank position vis-à-vis the less than transparent economic milieu in the country.

The main contributor to the increasing money in circulation was the rise in domestic deposits, as the deposits in lats increased quite substantially and euro deposits decreased relatively little. Despite dropping incomes and rising unemployment, households managed to increase their aggregate deposits by 0.3%, whereas the deposits by enterprises grew 2.1% over a month.

Lending activity remained low as the balance of both housing and consumer loans to households and commercial loans to entrepreneurs continued to drop. At the same time, the hope for increased activity in the business sector, including in relation with a potential rise in exports, is given credence by the rise portfolio on industrial loans for a second consecutive month.  From the point of view of demand for household loans, their desire to borrow could be stimulated by the downward trend of interest rates on loans - in November the weighted average interest rate on lats loans to households (at 13.0%) was the lowest since March 2007 and that of euro loans (at 5.5%) since October 2006. It should be noted however that if the lats interest rates might continue to drop as the economy stabilizes, the euro interest rates, with the European Central Bank worried about inflation risks, will probably resume rising.

The development of money supply over the next few months will be stimulated by a gradual use of foreign resources by the government as part of budget expenditure, whereas lending could mostly be stimulated by the growth expected in export-capable branches of the economy.

APA: Purviņš, V. (2020, 01. dec.). Money in circulation posts a slight increase. Taken from https://www.macroeconomics.lv/node/2502
MLA: Purviņš, Vilnis. "Money in circulation posts a slight increase" www.macroeconomics.lv. Tīmeklis. 01.12.2020. <https://www.macroeconomics.lv/node/2502>.
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