Money supply posts a seasonal drop

In January a seasonal drop in monetary indicators was observed as usual, with the balance of lats deposits and the amount of cash currency shrinking to a moderate extent, yet with euro deposits growing slightly. The relatively small drop repeated the trends of two previous Januaries. As a result, the amount of total money supply dropped below the high level of December 2011 while remaining above the indicator for the previous months of 2011. The loan balance continued to drop as lending both to businesses and households shrank, yet the rate at which loans dropped was substantially lower than in December.

Total loans in January dropped 0.5%, with euro loans down, but loans in lats on the rise. The total annual rate of the drop in the bank loan portfolio thus amounted to 8.2%, whereas the balance of loans granted in lats at the end of January grew 21.3% year-on-year.

The M3 money indicator, which characterizes the amount of both cash and non-cash money in the economy dropped 1.2% in January, with the annual increase in M3 amounting to 1.4%. The balance of domestic deposits attracted by commercial banks in January dropped 1.3% both in the household and business deposit categories. The drop affected only current accounts and short-term deposits whereas the deposits with maturity over a year increased by 3.2%.

The end-of the-year turmoil in the financial sector has been largely overcome and, as the compensations for deposits with "Latvijas Krājbanka" have been all but completed (at the beginning of February, 313 mil. lats or 94% of the amount to be compensated had already been paid out) the total amount of deposits has returned to the previous level, with the rest of the banking system absorbing the bulk of the paid out deposits. The demand for cash currency is also returning to normal after its end-of-year rise. No substantial rise in deposits can be expected in the next few months, for the high costs of heating and fuel as well as the slowdown in exports will act to lessen the accruals of both households and businesses in banks. The drop in loans matching the long observed average monthly rate indicates that in the current economic situation we cannot expect a renewed rise in the loan portfolio as the total amount of paid and written off loans continues to exceed the amount of newly granted loans. Stabilizing in the external demand would be the main precondition for any rise in lending: it would act to renew a demand for loans and lessen the level of credit risk on the part of both banks and borrowers.

APA: Purviņš, V. (2020, 27. nov.). Money supply posts a seasonal drop. Taken from https://www.macroeconomics.lv/node/2252
MLA: Purviņš, Vilnis. "Money supply posts a seasonal drop" www.macroeconomics.lv. Tīmeklis. 27.11.2020. <https://www.macroeconomics.lv/node/2252>.

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