(MENAFN - Khaleej Times) Money supply M0 - currency in circulation plus currency at banks - in the UAE surged by 4.4 per cent to Dh57.2 billion at the end of October from Dh54.8 billion at the end of September 2012.
The latest data released by the UAE Central Bank on Monday shows that the money supply aggregate M1 (currency in circulation plus monetary deposits, which include current accounts and call accounts at banks) increased by 1.4 per cent to Dh293.8 billion at the end of October from Dh289.8 billion at the end of September 2012.
The money supply is a key instrument for controlling inflation. A growth in money supply can lead to inflation if money demand is stable. In normal economic circumstances, if the money supply grows faster than real output it will cause inflation.
If economic growth matches the growth of the money supply, inflation should not occur when all else is equal, according to economists.
The Central Bank in a statement said, money supply aggregate M2, a key economic indicator used to forecast inflation dropped by 0.1 per cent, from Dh845.5 billion at the end of September 2012 to Dh844.7 billion at the end of October.
M2 comprises M1 and quasi-monetary deposits (resident time and savings deposits in dirham, commercial prepayments in dirham and resident deposits in foreign currencies). Economists sometimes decide whether there is too much money in a system by using the ratio between money supply and gross domestic product, or GDP.
In developed economies, the ratio between M2 and GDP is below one. In emerging market countries, M2 is usually one to 1.5 times GPD.
Money supply aggregate, M3 (M2 plus government deposits at bank operating in the UAE as well as at the Central Bank) increased by 1.1 per cent to Dh1.079 trillion at the end of October from Dh1.068 trillion at the end of September.
Total bank deposits increased by 1.6 per cent during the month of October 2012 to close at Dh1.162 trillion.
Meanwhile, total bank loans and advances (net of provisions and interest in suspense) remained at the same level reached at the end of September, Dh1.103 trillion, while total bank assets decreased by 0.1 per cent to reach Dh1.763 trillion, at the end of October 2012.
During the first 10 months of 2012, intermediary monetary aggregate M2 increased by 2.3 per cent, while bank loans and advances increased by three per cent and total bank deposits increased by 8.7 per cent.