1) Money supply growth continues to be significantly influenced by foreign resources inflow
2) M2 increased in 9 months by 9.8%
3) CNB provisions contribute to slow down M2 growth
4) M1 increased in nine months by 5.0%
1) This year's development of the monetary aggregate M2 is similar to that of a year ago, with the exception of Q1 when a slight increase was recorded in contrast to a decline last year. The differences in money supply development in Q1 1994 and Q1 1993 can be attributed to transformation shocks at the beginning of 1993 (the implementation of a new tax system, the CR´s independence following the split of the CSFR, the currency separation), requiring a restrictive character of the monetary policy during this period.
A rapid increase in M2 started in Q1, caused by the continuing strong inflow of foreign resources and growing domestic credit issue. M2 increased by 6.7% at the end of the first half (the year-to-year increase reached its highest level in March totalling 25.3%), thus signalling a deviation from the monetary programme. The CNB responded to this development by taking measures to dampen money supply growth.
2) In Q3 this year M2 growth gradually slowed down. Its increase totalled 9.8% at the end of September in contrast to the close-1993, the year-to- year increase amounting to 21.2%. Over the entire period, the year-to-year increases fluctuated above 20%.
3) Compared to the first half of this year, Q3 development can be assessed as positive. The development in the area of domestic credit issue is probably a result of CNB measures taken to slacken the pace of money supply growth (i.e. the increase in minimum reserves requirement, strengthening the sterilisation of resources inflow to the banking system, etc.).
4) The pace of growth of the monetary aggregate M1 continues to be slower than M2.
The development of particular money components provides evidence of a rapid increase in currency in circulation (over 9 months by 31.6%), time deposits (by 16.9%), moderate growth in foreign currency deposits (by 2.1%) and stagnation of demand deposits (a decline of 0.3%).
The development of currency in circulation is still partially affected by the currency separation, however, it reflects particularly an increase in cash payments to hedge against insolvency between enterprises.
The growth in time deposits is connected to the creation of longer-term financial reserves (especially by households) and the advantage of time deposits' interest rates (this goes for both households and enterprises). The development of household deposits also indicates the growing income and property differentiation of households, which may result in an increase in their share of large deposits (time deposits being more advantageous) and in a decline in the share of small deposits of total deposits.
Time deposits of enterprises are dominated by deposits up to one year, which serve as operational reserves in case of an advantageous financial or real investment. These deposits are stimulated by the difference in interest rates on time and demand deposits (this explains at the same time the development of demand deposits).
A slight increase (of CZK 2.8 bn) in foreign currency deposits is the result of their growth in the enterprise sphere, while households recorded a fall of CZK 1.6 bn. This provides evidence of household confidence in the stable crown and confirms the orientation towards the more advantageous interest rate on crown deposits. The growth in foreign currency deposits by enterprises is a further result of expanding the convertibility of the Czech crown (liberalising the possibilities for entrepreneurs to establish foreign exchange accounts).