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Loan growth in private sector pauses in August: ECB

Tuesday, September 27, 2016 - 17:42

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Credit growth to the private sector in the euro area was steady in August, ECB data showed Tuesday, boosting expectations that the bank will refrain from adding firepower to monetary policy for now.

[FRANKFURT] Credit growth to the private sector in the euro area was steady in August, ECB data showed Tuesday, boosting expectations that the bank will refrain from adding firepower to monetary policy for now.

Many of the European Central Bank's measures aim to make access to credit easier, allowing people and businesses to invest and contribute to growth - making the lending statistics a key measure of their effectiveness.

August saw approved loans increase 1.3 per cent compared with the same month in 2015, the same pace as in July - when loans grew only slightly more strongly than in June.

Corrected for some strictly financial transactions, loan growth to households and companies remained stable at 1.7 per cent in August, the Frankfurt institution said.

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Since Britons voted to quit the EU in June, ECB policymakers have not added to measures designed to boost lending to households and businesses despite fears of an economic slowdown in the single currency bloc.

President Mario Draghi in March announced a new round of cheap loans to banks, dropped interest rates to record lows and increased the ECB's government and corporate bond-buying programme from 60 to 80 billion euros (S$91.59 billion) per month.

In recent public appearances, Mr Draghi and other ECB governing council members have said the volley of monetary policy interventions have yet to take their full effect and should be enough to contain the impact of post-Brexit uncertainty.

Meanwhile, growth in the overall money supply, known as M3, sped up, reaching 5.1 per cent in August - an increase over July's 4.9 per cent.

M3 growth is used by the ECB as an indicator of future inflation.

Tuesday's data "will likely do little to change belief that the ECB is set to sit tight" at its October 20 meeting, IHS Global Insight analyst Howard Archer wrote, arguing that the central bankers will be satisfied with stable growth in lending to businesses and households.

The ECB will want to avoid a Brexit blow to banks' willingness to lend, he went on, and could add to stimulus in December.

But ultimately "much will depend on whether businesses and households become more cautious about borrowing" in the uncertain post-Brexit world, Mr Archer said.

AFP

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