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ECB's Draghi says resurgent bank lending supporting recovery

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Businesses' demand for bank loans is resurgent in the euro zone as cheaper credit makes new investment projects more attractive, and this will support an economic recovery, ECB President Mario Draghi said on Monday.

[BRUSSELS] Businesses' demand for bank loans is resurgent in the euro zone as cheaper credit makes new investment projects more attractive, and this will support an economic recovery, ECB President Mario Draghi said on Monday.

Speaking to European lawmakers in Brussels, Draghi said the ECB's deployment of monetary stimulus policies was accelerating the transmission of lower interest rates through the entire financial system. "As bank lending rates are being reduced, new investment projects - previously considered unprofitable - become attractive," he said. "In the short-run, this should sustain the demand for credit and investment." "...the easing of lending conditions is progressing hand-in-hand with a resurgent demand for credit to finance business investment," Draghi added. "In the longer-term perspective, this will increase potential output." Euro zone money supply figures due on Thursday are expected to show a slight rise in lending to households and firms in February. Lending has not risen since July 2012.

The ECB has cut interest rates to record lows, loaned banks billions in cheap funds and begun buying sovereign bonds to try to buoy the euro zone economy and lift inflation from below zero and back towards its target of just under 2 per cent.

The central bank plans to buy 60 billion euros (S$89.7 billion) of assets a month until September 2016, or until it sees a "sustained adjustment" in the path of inflation back towards its target.

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Draghi said the ECB's policymaking Governing Council would take a "holistic perspective" when assessing the inflation path,"looking through any surprise in measured inflation (in either direction) if judged to be transient".

REUTERS

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