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| Source: Central Bank and Financial Services Authority of Ireland
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The Central Bank said today that the rate of increase in Irish residential mortgages dropped from a revised 10.9 per cent in May, to 10.2 per cent in June -the lowest since December 1991. The annual growth rate of Irish private-sector credit (PSC)1 fell to its lowest rate since June 2003, at 14.3 per cent, from 15.1 per cent in May.2 In aggregate, PSC increased by €2.6 billion in June.
The Bank said that there were two separate developments that influenced the PSC in June. First, over €7 billion of new residential mortgage-backed securities were issued. Since securitised mortgages are removed from credit institutions’ balance sheets, this was reflected in a fall in total loans. Second, at the same time there was a rise in the smaller component of PSC – credit institutions’ holdings of securities. As holdings of securities are also a component of non-mortgage credit, this resulted in the annual growth rate of non-mortgage credit rising in June to 20.2 per cent, from a revised 18.3 per cent in May.
The annual rate of increase in outstanding indebtedness on credit cards declined in June to 11.4 per cent, from 11.9 per cent in May. Month-on-month, both new spending and payments received fell, while outstanding indebtedness increased by only €10 million. This brought total outstanding indebtedness on credit cards to €3 billion.
The monthly increase in residential mortgages (inclusive of securitised mortgages) in June of €893 million resulted in an average monthly rise for the first half of the year of just above €900 million. The increase in residential mortgage borrowing in H1 2008 was over a third lower than in the corresponding period last year; the change in residential mortgage borrowing in 2008 to date is more comparable to 2003. The annual rate of increase in residential mortgages dropped from a revised 10.9 per cent in May, to 10.2 per cent in June3, which was the lowest since December 1991.
Money market interest rates increased across most terms in June, in anticipation of higher official ECB interest rates The largest increase, of 29 basis points, was in the 12-month rate, while the overnight rate rose by 16 basis points. Funds provided by the Bank as part of the ECB’s monetary policy operations rose by €1.5 billion in June, with main refinancing operations accounting for most of the increase. The euro was 1.7 per cent higher against the US dollar and 0.8 per cent higher against sterling. The euro reached a lifetime high against the Japanese yen in June, and increased by 1.6 per cent over the month.
Exchange-rate movements resulted in a 0.1 per cent rise in Ireland's average nominal harmonised competitiveness indicator (HCI) 4 from 114.8 in May, to 114.9 in June.
Private-Sector Credit
Total lending by credit institutions in Ireland to non-Government Irish residents increased by €2.6 billion, or 0.7 per cent, to €392.9 billion in June. Euro-denominated lending accounted for all of the increase; non-euro denominated loans fell by €1 billion. Lending to non-bank IFSC companies decreased by €391 million over the month.
Components of Private-Sector Credit
The changes in the main PSC loan categories on credit institutions’ balance sheets in June were as follows:
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Term/revolving loans increased by €1.1 billion;
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Residential mortgages (unadjusted for securitised mortgages) were €6 billion lower;
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Other mortgages rose by €55 million;
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Loans up to and including one year were €219 million higher; and
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Overdrafts expanded by €574 million.
Money Supply
Credit institutions in Ireland accounted for €217.6 billion of the euro area’s broad money supply (M3) in June, a monthly increase of €6.2 billion, or 2.9 per cent. Annually, M3 declined by 6.8 per cent in June, from a year-on-year decrease of 7.3 per cent in May. There was a strong inflow in June into deposits with an agreed maturity of up to two years, especially from other euro area residents, and in aggregate deposits were €5.3 billion higher.
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| Source: Central Bank and Financial Services Authority of Ireland
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Money-market fund shares/units also expanded over the month, by €4.4 billion. These increases were partially offset by a fall in debt securities with up to two years maturity of €3.7 billion, which resulted from increased holdings of euro area MFI debt securities by Irish credit institutions – these are netted out of the money supply contribution.
− Breakdown of Deposits
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 securitised residential mortgages 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.
