Eurozone firms' appetite for cash slows

[FRANKFURT AM MAIN, Germany] Growth in eurozone banks' lending to businesses slowed in February, figures from the European Central Bank showed Monday.

Lending growth to the private sector - businesses and households - in the 19-nation single currency area eased to 2.0 per cent in February, after holding steady at 2.2 per cent in the previous two months.

Growth in lending to the private sector is a closely-watched indicator of the economic outlook.

Adjusting for some purely financial transactions, loan growth fell back to its December level of 2.3 per cent, after a small boost in January.

The slowdown was driven by businesses even as consumers continued to borrow more.

Still in adjusted terms, growth in lending to households added 0.1 points in February to reach 2.3 per cent, while growth in credit to businesses fell back, to 2.0 per cent compared with January's 2.3.

The ECB uses the lending data as one yardstick for the effectiveness of its easy-money policies of low interest rates and mass bond-buying, designed to pump cash through the financial system and into the real economy.

February's data "may modestly stir caution within the ECB over reducing monetary policy stimulus," commented economist Howard Archer of IHS Markit.

April will see the eurozone central bank reduce its monthly bond purchases from 80 to 60 billion euros, with many observers seeing the move as a step towards winding down its massive monetary support to the economy.

Pressure has grown on policymakers to exit its stimulus programme and raise historic low interest rates, as inflation in the single currency area has surpassed its target of just below 2.0 per cent, regarded as most favourable to growth.

But so far the ECB's governing council has pointed to low underlying inflation - excluding volatile food and energy prices - to justify keeping the money taps open and the cost of borrowing low.

Looking beyond February's data, "the overall impression remains that the eurozone economy has had a very decent first quarter of 2017," IHS' Mr Archer said.

That could prompt the ECB to drop long-standing language suggesting it could lower interest rates even further at a future meeting, he went on.

AFP