Eurozone M3 money supply growth  --  a measure of cash and credit growth in the region and viewed as an indicator of future inflation - - fell more than expected in January, the European Central Bank reported on Thursday, signalling another interest rate cut next week, from the current benchmark rate of 2%.

The annual rate of growth of M3 decreased to 5.9% in January 2009, from 7.5% in December 2008. The three-month average of the annual growth rates of M3 over the period November 2008 - January 2009 decreased to 7.0%, from 7.9% in the period October 2008 - December 2008.

Regarding the main components of M3, the annual rate of growth of M1 increased to 5.2% in January 2009, from 3.3% in December. The annual rate of growth of short-term deposits other than overnight deposits decreased to 9.7% in January, from 13.6% in the previous month. The annual rate of growth of marketable instruments decreased to -2.4% in January, from 3.7% in December.

Turning to the main counterparts of M3 on the asset side of the consolidated balance sheet of the MFI (Monetary Financial Institutions) sector, the annual growth rate of total credit granted to euro area residents decreased to 6.0% in January 2009, from 6.2% in December. The annual rate of growth of credit extended to general government increased to 5.2% in January, from 3.1% in December, while the annual growth of credit extended to the private sector decreased to 6.1% in January, from 6.8% in December.

Among the components of the latter, the annual rate of growth of loans to the private sector decreased to 5.0% in January, from 5.8% in the previous month (adjusted for loan sales and securitisation2 the annual growth rate of loans to the private sector decreased to 6.7%, from 7.3% in the previous month). The annual growth rate of loans to nonfinancial corporations decreased to 8.8% in January, from 9.5% in December. The annual growth rate of loans to households decreased to 1.2% in January, from 1.6% in the previous month. The annual rate of growth of lending for house purchase decreased to 1.0% in January, from 1.5% in December. The annual rate of growth of consumer credit decreased to 1.3% in January, from 1.7% in December while the annual growth rate of other lending to households decreased to 2.0% in January, from 2.3% in the previous month.

Finally, the annual rate of growth of loans to non-monetary financial intermediaries (except insurance corporations and pension funds) decreased to 7.7% in January, from 10.7% in the previous month.

Over the 12 months up to January 2009, the net external asset position of the euro area MFI sector declined by €235 billion, compared with a decline of €119 billion over the 12 months up to December. The annual rate of growth of longer-term financial liabilities of the MFI sector increased to 3.0% in January, from 2.1% in December.