ECB struggles with inflation target

The money supply in the euro zone no longer grows quite as strongly in August. Meanwhile, members of the Governing Council are discussing the future inflation target – and the digital euro

The money supply is growing - but not as fast as it was in July.

Dhe money supply in the euro zone continued to grow strongly in August, but not quite as strongly as in July. The European Central Bank (ECB) announced on Friday. The broader money supply M3, which includes cash and sight deposits as well as various money-like securities and investments, rose by 9.5 percent in August, after 10.1 percent in July. The more narrowly defined money supply M1, on the other hand, which is mainly cash and sight deposits from non-banks, rose by 13.2 percent, after 13.5 percent in July.

Lending continues to rise sharply

Corporate lending grew 7.1 percent. This is the third month in a row that the increase has been stronger than it has been for eleven years. In August, the banks granted households 3 percent more loans than a year earlier. In the previous two months, too, the increase was at this level.

On Friday, members of the Governing Council also commented on the future inflation target of the central bank and the digital euro. The president of the French central bank, François Villeroy de Galhau, said at an online conference that the inflation target of “below, but close to 2 percent” is often understood as a kind of upper limit. He spoke out in favor of interpreting it in a symmetrical sense: After falling below the limit, the ECB could temporarily tolerate inflation rates of more than 2 percent. “We should check whether the current wording calls that into question,” said Villeroy de Galhau. However, such a change does not have to result in an average inflation targeting like the one at the US Federal Reserve.

There is still a long way to go to the digital euro

Meanwhile, the Spanish central bank chief Pablo Hernández de Cos took the view that the road to the digital euro in Europe was still long: the ECB first needed “comprehensive advice and preliminary reviews” before making a decision. “I think we should deepen the current state of our work,” added de Cos. Strong emphasis must be placed on developing a testing agenda for such a project. This will help the central bank to make an informed decision about the design options.