The money supply (M3) growth decelerated to multi year low to 10% in
December 2014. This was lower from 11% growth in November and October
2014 and below the 12.7% growth in September 2014. The M3 growth eased
amid deceleration in all three components-time deposits with banks,
demand deposits with banks and currency with the public.
Meanwhile, the growth in M3 increased by Rs 31.4 billion, led by rise in both time deposits and currency with the public, while demand deposits with banks fell in the fortnight ended 12 December 2014. The growth in other deposits with the Reserve Bank of India (RBI) also declined.
Components
M3 decelerated 7.3% till 12 December 2014 in 2014-15 compared with the 10.2% rise in the same period a year ago. Moreover, the annual growth rate at 10.2% is lower than the 15.6% increase a year ago, mainly due to the deceleration in all three components-time deposits with banks, demand deposits with banks and currency with the public. . The growth rate in time deposits with banks declined 10.7% from 16.8% a year ago, demand deposits with banks, another major component of broad money, eased at 7.9% from 11.4% a year ago and currency with public decelerated to 8.7% from 11.2% a year ago.
M3 increased by Rs 31.4 billion led by rise in currency with public and time deposits with banks in the fortnight ended 12 December 2014. However, the rise in M3 was restricted by the fall in other deposits with RBI and demand deposits with banks by Rs 338.5 billion.
Demand deposit with banks grew 3.7% till 12 December 2014 compared with a rise of 2.7% in the same period a year ago. The annual growth rate stood at 7.9% on 12 December 2014 compared with a rise of 11.4% a year ago. On other hand, time deposits increased 7.7% till 12 December 2014 in 2014-15 compared with 11.6% growth in the same period a year ago. The annual growth rate stood at 10.7% on 12 December 2014 compared with a 16.8% increase a year ago.
One of the major components of M3, that is currency with the public, grew 8.7% annually on 12 December 2014 compared with a 11.2% increase a year ago. It recorded a 6.9% growth till 12 December in 2014-15 compared with a 7.6% increase in the same period a year ago. Meanwhile, fortnightly the currency with the public increased 2.1% to Rs 273 billion.
Sources
The net bank credit to government rose 1.2% in the fortnight ended 12 December 2014 and increased 3.9% till 12 December in 2014-15. This is lower from the 11.9% growth a year ago. The annual growth rate decelerated to 4.1% on 12 December 2014 compared with 13.9% a year ago. The growth in net foreign exchange assets of the banking sector stood at 6.9% till 12 December 2014 in 2014-15 compared with a growth of 15.7% in the same period a year ago. Meanwhile, the annual growth rate rose 8.6% on 12 December 2014 compared with a rise of 16.4% a year ago.
Reserve money
The reserve money growth rate also decelerated annually in December 2014. The annual growth rate was 9.4% on 26 December 2014 compared with the 10.7% growth a year ago. The slowdown in the growth in currency in circulation with the RBI and bankers' deposits with RBI led to deceleration in reserve money growth. While the growth in bankers' deposit with the RBI decelerated to 7.4% on 26 December 2014 compared with a rise of 9% rise a year ago, the currency in circulation grew 9.5% from the 11.1% rise a year ago.
Moreover, the slowdown in the foreign exchange growth eased the growth rate of reserve money. Net foreign exchange assets of the RBI grew 11.5% on 26 December 2014 compared with a rise of 13.1% a year ago. Also, the growth rate was 11.4% till 26 December in 2014-15 compared with a 15.6% rise in the same period a year ago. Net non-monetary liabilities of the RBI increased 2.2% till 26 December 2014 in FY15 compared with a 27.3% growth in the same period at year ago. The annual growth rate fell by 2.2% on 26 December 2014 compared with a 21% rise a year ago.
Outlook
The deceleration in all the three components of money supply-banks' time deposits, demand deposits and currency with the public pushed M3 growth below 11% in December 2014 over a year ago, the multi year low.
The tepid credit growth has been forcing banks to cut pricing of deposits over the past few months. This may further impact the M3 growth. The RBI may ease rates in CY15 amid fall in inflation. The rate cut may help the M3 growth. The RBI kept the key policy rate unchanged in the Fifth Bi-Monthly Monetary Policy. Meanwhile, it has indicated a cut in rates, stating “a change in the monetary policy stance is likely early next year, including outside the policy review cycle”.
Meanwhile, the growth in M3 increased by Rs 31.4 billion, led by rise in both time deposits and currency with the public, while demand deposits with banks fell in the fortnight ended 12 December 2014. The growth in other deposits with the Reserve Bank of India (RBI) also declined.
Components
M3 decelerated 7.3% till 12 December 2014 in 2014-15 compared with the 10.2% rise in the same period a year ago. Moreover, the annual growth rate at 10.2% is lower than the 15.6% increase a year ago, mainly due to the deceleration in all three components-time deposits with banks, demand deposits with banks and currency with the public. . The growth rate in time deposits with banks declined 10.7% from 16.8% a year ago, demand deposits with banks, another major component of broad money, eased at 7.9% from 11.4% a year ago and currency with public decelerated to 8.7% from 11.2% a year ago.
M3 increased by Rs 31.4 billion led by rise in currency with public and time deposits with banks in the fortnight ended 12 December 2014. However, the rise in M3 was restricted by the fall in other deposits with RBI and demand deposits with banks by Rs 338.5 billion.
Demand deposit with banks grew 3.7% till 12 December 2014 compared with a rise of 2.7% in the same period a year ago. The annual growth rate stood at 7.9% on 12 December 2014 compared with a rise of 11.4% a year ago. On other hand, time deposits increased 7.7% till 12 December 2014 in 2014-15 compared with 11.6% growth in the same period a year ago. The annual growth rate stood at 10.7% on 12 December 2014 compared with a 16.8% increase a year ago.
One of the major components of M3, that is currency with the public, grew 8.7% annually on 12 December 2014 compared with a 11.2% increase a year ago. It recorded a 6.9% growth till 12 December in 2014-15 compared with a 7.6% increase in the same period a year ago. Meanwhile, fortnightly the currency with the public increased 2.1% to Rs 273 billion.
Sources
The net bank credit to government rose 1.2% in the fortnight ended 12 December 2014 and increased 3.9% till 12 December in 2014-15. This is lower from the 11.9% growth a year ago. The annual growth rate decelerated to 4.1% on 12 December 2014 compared with 13.9% a year ago. The growth in net foreign exchange assets of the banking sector stood at 6.9% till 12 December 2014 in 2014-15 compared with a growth of 15.7% in the same period a year ago. Meanwhile, the annual growth rate rose 8.6% on 12 December 2014 compared with a rise of 16.4% a year ago.
Reserve money
The reserve money growth rate also decelerated annually in December 2014. The annual growth rate was 9.4% on 26 December 2014 compared with the 10.7% growth a year ago. The slowdown in the growth in currency in circulation with the RBI and bankers' deposits with RBI led to deceleration in reserve money growth. While the growth in bankers' deposit with the RBI decelerated to 7.4% on 26 December 2014 compared with a rise of 9% rise a year ago, the currency in circulation grew 9.5% from the 11.1% rise a year ago.
Moreover, the slowdown in the foreign exchange growth eased the growth rate of reserve money. Net foreign exchange assets of the RBI grew 11.5% on 26 December 2014 compared with a rise of 13.1% a year ago. Also, the growth rate was 11.4% till 26 December in 2014-15 compared with a 15.6% rise in the same period a year ago. Net non-monetary liabilities of the RBI increased 2.2% till 26 December 2014 in FY15 compared with a 27.3% growth in the same period at year ago. The annual growth rate fell by 2.2% on 26 December 2014 compared with a 21% rise a year ago.
Outlook
The deceleration in all the three components of money supply-banks' time deposits, demand deposits and currency with the public pushed M3 growth below 11% in December 2014 over a year ago, the multi year low.
The tepid credit growth has been forcing banks to cut pricing of deposits over the past few months. This may further impact the M3 growth. The RBI may ease rates in CY15 amid fall in inflation. The rate cut may help the M3 growth. The RBI kept the key policy rate unchanged in the Fifth Bi-Monthly Monetary Policy. Meanwhile, it has indicated a cut in rates, stating “a change in the monetary policy stance is likely early next year, including outside the policy review cycle”.
