ECB says banks see eurozone credit demand bottoming out
DEMAND for credit in the eurozone may be bottoming out after falling for more than a year in the face of rising interest rates and a struggling economy, according to the European Central Bank.
The ECB’s quarterly Bank Lending Survey, published on Tuesday (Jan 23), showed that the drop in appetite for business and consumer loans was smaller in the fourth quarter than in the previous three months. Lenders even expect a small increase this quarter – the first since early 2022.
Banks continued to tighten credit standards, however, albeit at a more moderate pace that’s likely to abate further in the early months of 2024, the ECB said.
Officials in Frankfurt are assessing how much of the effect of their unprecedented ramp-up in interest rates is still to be felt. Bank lending is a key channel through which they want to dampen economic activity and return inflation to 2 per cent – though without turning what’s shaping up to be a soft landing for Europe into something more severe.
The quarterly survey, which began in 2003, comes just two days before the ECB next sets monetary policy. It’s widely expected to keep borrowing costs on hold at 4 per cent for a third straight meeting, and is likely to push back further against investor bets for rates to be cut as soon as April.
The poll showed that market expectations for looser policy may already be feeding through to the economy. Terms and conditions for mortgages even eased at the end of last year, the ECB said.
“The net easing in the housing loan category was not accompanied by a corresponding decrease in lending margins and followed seven quarters of tightening,” it said. BLOOMBERG
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