Eurozone money supply growth has hit an 18-month high, and economists said today’s figures gave the European Central Bank an extra reason to keep interest rates on hold.
ECB data showed M3 money supply, a measure of the amount of cash in bank accounts and other liquid short-term investments, grew at a 7.3 per cent annual rate in May versus an upwardly revised 6.8 per cent in April.
This was faster growth than the 6.9 per cent forecast by economists polled by Reuters and the strongest since November 2003 when it hit 7.4 per cent.
The ECB has said that M3 growth faster than 4.5 per cent risks fuelling inflation down the line.
Economists explain the strong M3 growth by low interest rates keeping down the cost of borrowing and uncertainty on equity markets increasing investors' preference for cash holdings.
Growth in loans to the private sector rose by an annual 7.6 per cent in May, up from 7.4 per cent growth the month before, with much of the money raised going into a housing market that is booming in some eurozone countries.
The failure of the eurozone economic recovery to gather speed, despite ECB interest rates at 2 per cent for over two years, has led some economists and politicians to call for a further reduction in rates.
But the ECB's primary focus is on keeping inflation in check, and policymakers have furthermore argued that a shortage of cheap credit is not the reason why consumers and businesses are not spending and investing more.
Instead the ECB urges governments to implement market reforms to improve the business climate and consumers' confidence about the long-term health of the eurozone economy.