Stability with a plus sign

Some monetary indicators decreased, but the decrease was negligible and did not affect the overall money supply situation in September. At the same time, demand for cash currency grew, and so did both the balance of loans granted to non-financial enterprises and the overall portfolio of lats loans.

The domestic loan balance dropped slightly overall, as the rise in loans granted to enterprises lagged behind the drop in household loan portfolio; however the rate of annual change in loans, with the indicators of banks that lost their licences this year excluded, improved to minus 5.1%; moreover, lending to non-financial enterprises expanded for six consecutive months. The volume of loans granted to non-financial enterprises grew 3% over this period. This is an indication that, contrary to the commonly held assumption, lending in Latvia has not come to a halt. Money is available for successful projects.

Indicator M3, which characterizes the amount of cash and non-cash currency in the economy, dropped by 1.3% in September, even though the domestic overnight deposits, deposits redeemable at notice and the amount of cash currency in circulation increased slightly. The drop in time deposits was rather steep (by 6.1%), acting to determine a drop in both bank-attracted deposits and the overall money supply. A big role in this development was played by the extremely low interest rates on deposits, which stimulated spending or storing cash instead of placing it in savings accounts in banks.

The situation in the domestic financial markets remains stable and in the real sector of the economy growth is observed, yet there were practically no notable medium term growth trends in the money indicator sphere, except for the constantly growing demand for cash currency. The rate of annual change in broad money and deposits is close to zero, with their level in absolute numbers remaining substantially the same for two consecutive years. The annual rate of drop in the loan portfolio has likewise remained at the same level for two years. However, with the external economic environment experiencing such hard times, stability and lack of deterioration in domestic indicators should be considered a positive development.

APA: Purviņš, V. (2020, 27. nov.). Stability with a plus sign. Taken from https://www.macroeconomics.lv/node/2179
MLA: Purviņš, Vilnis. "Stability with a plus sign" www.macroeconomics.lv. Tīmeklis. 27.11.2020. <https://www.macroeconomics.lv/node/2179>.

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