Source: Central Bank and Financial Services Authority of Ireland

The annual growth rate in Irish residential mortgages in May 2008 fell to 11.1 per cent, according to the Central Bank - the lowest rate since January 1992. Demand for private-sector credit continued to slow in May, with the annual rate of increase declining to 15.1 per cent. Non-mortgage credit expanded at an annual rate of 18.2 per cent. May recorded the highest monthly increase in residential mortgages in 2008 to date of €1.3 billion.

A monthly increase of €4.1 billion in private-sector credit (PSC)¹ in May brought the outstanding amount of PSC to €390.3 billion. The annual rate of increase in PSC declined to 15.1 per cent in May, however, from 15.9 per cent in April.² The last time PSC increased annually at this pace was in late 2003. In addition, the annual growth rate of non-mortgage credit also declined, by 1.1 percentage points, to 18.2 per cent in May. Credit institutions participating in the latest Euro Area Bank Lending Survey reported that they expect tighter credit standards in the second quarter of 2008 to lead to lower lending to enterprises.

In May 2007, maturing SSIA accounts led to large repayments by credit card holders, which resulted in a sizeable drop in outstanding indebtedness on credit cards. Twelve months later, this SSIA effect is no longer impacting on the annual rate of increase in outstanding indebtedness on credit cards. Consequently, the year-on-year increase has risen to 11.9 per cent in May, from 7.2 per cent in April.

Source: Central Bank and Financial Services Authority of Ireland

Outstanding residential mortgages (inclusive of securitised mortgages) increased by €1.3 billion in May – the largest net monthly increase in the year to date. This brought the increase for the year to May to €4.9 billion, leaving the average monthly increase below €1 billion.

Total outstanding residential mortgages stood at €144.7 billion in May, and the annual rate of increase declined from 11.4 per cent in April, to 11.1 per cent in May, the lowest annual growth rate since January 1992.³

Money market interest rates decreased marginally for terms less than one month in May, while the spread between the main ECB interest rates and the longer-term interest rates continued to widen. The largest increase was in the 12-month rate, which rose by 14 basis points over the month. Funds provided by the Bank as part of the ECB's monetary policy operations decreased by €1.7 billion in May, with main refinancing operations accounting for the decline. The euro, which reached lifetime highs against the dollar and sterling in April, declined against both in May, by 0.2 per cent and 0.5 per cent, respectively.

The euro appreciated by 0.7 per cent against the Japanese yen. Exchange-rate movements resulted in a 0.4 per cent decrease in Ireland's average nominal harmonised competitiveness indicator (HCI)⁴³ from 115.3 in April, to 114.8 in May.

Total lending by credit institutions in Ireland to non-Government Irish residents increased by €4.1 billion, or 1.1 per cent, in May to €390.3 billion. Euro-denominated lending accounted for almost 90 per cent of the increase. Lending to non-bank IFSC companies increased by €678 million over the month.

• The changes in the main PSC loan categories on credit institutions' balance sheets in May were as follows:

• Term/revolving loans increased by €1.5 billion;

• Residential mortgages (unadjusted for securitised mortgages) were €1.5 billion higher;

• Other mortgages decreased by €72 million;

• Loans up to and including one year rose by €891 million; and Overdrafts fell by €435 million.

Credit institutions in Ireland accounted for €211.3 billion of the euro area's broad money supply (M3) in May, a monthly decrease of €3.6 billion, or 1.7 per cent. Annually, M3 declined by 7.3 per cent in May, from a year-on-year decrease of 2.9 per cent in April. Most components of money supply recorded a decline in May, the largest being debt securities with up to two years maturity, which decreased by €2.3 billion. The fall in debt securities resulted from increased holdings of euro-area MFI debt securities by Irish credit institutions – these are netted out of the money supply contribution. In addition, the value of repurchase agreements fell by €700 million and money market fund shares/units fell by €403 million.

Deposits included in money supply declined by €298 million.

• Overnight deposits declined by €174 million;

• Deposits redeemable at notice of up to three months fell by €119 million; and

• Deposits with an agreed maturity of up to two years decreased by €5 million.

1 The money and credit statistics are provided by all of the credit institutions authorised to carry on banking business in the State under Irish legislation as well as credit institutions authorised in other Member States of the EU operating in Ireland on a branch basis. Credit institutions authorised in other EU Member States operating in Ireland on a cross-border basis, i.e., with no physical presence in the State, are not included in the statistics.

2 Adjusted rate i.e. excluding lending to non-Monetary Financial Institutions (MFI) IFSC entities, which are not associated with the domestic economy, and adjusted for valuation effects caused by exchange-rate movements.

3 The weighted average growth rates of mortgage and non-mortgage credit do not equate to the PSC growth rate because securitisations are included in calculating the adjusted growth rate for residential mortgages, but are not included in PSC.

4 A decrease in the indicator points to an improvement in price competitiveness, while an increase points to a disimprovement. For background, see Box B in the ‘Domestic Prices, Costs and Competitiveness' chapter of the Bank's Quarterly Bulletin, No. 2 2007.