Source: Central Bank and Financial Services Authority of Ireland

The Central Bank reported today that annual rate of increase in Irish private-sector credit (PSC)¹ rose to 17.1 per cent in March, equivalent to the November 2007 annual growth rate. The annual increase in non-mortgage credit rose to 20.8 per cent and the residential mortgage growth rate continued to decline, to 11.6 per cent in March, the lowest annual rate since 1992.

The Central Bank said that for the first time in eight months, the annual rate of increase in PSC rose in March compared with the previous month. PSC expanded by €€5.3 billion over the month, bringing the outstanding level to €€384.3 billion. PSC can be broken down into separate components, with loans being the most significant subcategory. Month-on-month increases in loans have been subdued since the start of this year. However, in March there was an exceptionally large increase in another component of PSC namely, holdings of securities.

In addition, there was a particularly small change in PSC in March last year and, as a result of these two factors, the annual rate of increase rose to 17.1 per cent, from 15.6 per cent in February.²

Credit institutions purchases of securities were also reflected in a reversal in the trend of the non-mortgage credit growth, with the annual rate rising to 20.8 per cent in March, from a revised 18.9 per cent in February. This was the first time that the non-mortgage credit rate increased in over a year. The decline in the annual rate of increase in outstanding indebtedness on credit cards since September 2007 halted in March, when the rate rose to 8.6 per cent from 8.2 per cent in February. However, outstanding indebtedness rose by only €€10.4 million over the month.

After two very weak months, the increase in residential mortgages (inclusive of securitised mortgages) rose back above €€1 billion in March. The Central Bank said that the highest increase during 2007 was recorded in March, and over the last ten years the increase in March has generally been above average. However, Q1 2008 remains the weakest start to a year for residential mortgage lending in five years. The annual increase in residential mortgages was 11.6 per cent in March − the lowest annual rate of increase since May 1992.³

Market interest rates rose across all terms in March, although increases were more pronounced for longer periods. The overnight rate increased by 12 basis points, while the 3-month and 12-month rates both rose by 35 basis points. The spread between the 1-month and 12-month rates rose to 37 basis points by the end of the month, from 18 basis points at end-February. This partly reflected changing medium-term market expectations about the future path of key ECB interest rates. Funds provided by the Bank as part of the ECBs monetary policy operations increased by €€6.1 billion in March, with main refinancing operations rising by €3.4 billion, and longer-term refinancing operations rising by €€2.7 billion. The euro reached a lifetime high against both the dollar and sterling during March, rising by 4.3 per cent and 4 per cent over the month, respectively. The euro was 0.4 per cent lower against the Japanese yen in March. Exchange-rate movements resulted in a 2.3 per cent increase in Ireland's average nominal harmonised competitiveness indicator (HCI)⁴ from 111.4 in February, to 113.9 in March.

Source: Central Bank and Financial Services Authority of Ireland

Private-Sector Credit

Total lending by credit institutions in Ireland to non-Government Irish residents increased by €€5.3 billion, or 1.4 per cent, in March to €€384.3 billion. All of the increase was in eurodenominated lending; non-euro lending fell by €€955 million, mostly in the loans up to and including one year category. Lending to non-bank IFSC companies decreased by €€1.1 billion
over the month.

Components of Private-Sector Credit

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

• Term/revolving loans rose by €1.5 billion;
• Residential mortgages (unadjusted for securitised mortgages) were €503 million lower;
• Other mortgages increased by €49 million;
• Loans up to and including one year fell by €17 million; and
• Overdrafts rose by €657 million.

Money Supply

Credit institutions in Ireland accounted for €218.6 billion of the euro areas broad money supply (M3) in March, a monthly increase of €6 billion, or 2.8 per cent. The annual rate of increase declined to 0.8 per cent, from 1.2 per cent in February. The aggregate increase in deposits of €2.8 billion over the month was partially offset by a fall in money market fund shares/units of €2.1 billion, while debt securities issued with up to two years maturity rose by €5.6 billion.

− Breakdown of Deposits

• Overnight deposits increased by €2 billion;
• Deposits redeemable at notice of up to three months fell by €190 million; and
• Deposits with an agreed maturity of up to two years rose by €1.1 billion.

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 Banks Quarterly Bulletin, No. 2 2007.