Money in circulation stabilized, drop in lending abating

In the conditions of a low domestic demand persisting on the one hand and confidence level improving and production volumes in the exporting sectors growing on the other, the developing situation in the Latvian economy has also stabilized money in circulation. In May 2010 the M3 money indicator that characterizes the volumes of both cash currency and non-cash currency in the economy remained almost unchanged whereas the rate of M3 annual growth continued to increase reaching 4.9%.

The volume of money in May was little affected by the changes of cash currency in circulation: it increased by only 0.2%. The rate of increase of domestic deposits was a little faster (0.4%), with the increase determined by the increase in lats deposits both by enterprises and households, but the balance of euro deposits decreased.  It was a positive development that the rise in deposits was determined by the long-term (maturity over two years) component; the impact of the changes in deposits on the money indicator M3 was however slightly negative overall because long-term deposits, because of the lower liquidity, are not included in the M3.

In May the trend of dropping lending, which had lasted a year and a half, abated. Since October 2008, the beginning of the drop in lending, the loan balance dropped on average by 0.6% per month, whereas in May the drop amounted to a mere 0.1% or 12.5 mil. lats and the loans granted in lats grew. As a result, the loan annual change dynamics improved for a second consecutive month, with the annual rate of annual credit decrease dropping from -7.8% in April to -7.2% in May.

The stabilization trends in the economy will determine a moderate growth in money supply in the coming months as well. It will be promoted also by a gradual increase in lending activity both in the business sphere and in regard to households that are confident in their financial sustainability.