Flat loan growth heralds more ECB easing: analysts

[FRANKFURT] Growth in borrowing by businesses and households in the eurozone remained flat in September, the European Central Bank said Thursday, fuelling expectations it will extend its unconventional monetary policy beyond existing deadlines.

Policy measures from the ECB are designed to stimulate lending to the real economy, allowing people and businesses to invest and the economy to grow.

Lending has been growing steadily, but the rate of growth has been slow to pick up.

Overall, there was 1.8 per cent growth in lending in September compared with 1.3 per cent the previous month.

Corrected to remove some strictly financial transactions, credit grew at 2.0 per cent in September, a slight increase over August's 1.7 per cent rate and the fastest pace since June 2011.

But looking at the detail showed that growth in lending to households and to non-financial corporations had remained unchanged from the previous month.

The data "fuels belief that the ECB is more likely than not to take further stimulative action in December," said Howard Archer of IHS Global Insight.

The ECB in March set interest rates at historic lows, offered interest-free loans to banks with conditions encouraging them to lend the cash on, and buys 80 billion euros of government and corporate bonds each month.

Such unconventional monetary policy is aimed at getting inflation back up to just below 2.0 per cent, enshrined in the central bank's mandate as the level most favourable to growth.

While it insists its medicine is working to boost growth in the 19-nation euro single currency area, observers broadly agree that the ECB needs to maintain the support to nurture a still-fragile economic recovery.

Thursday's data come on top of an October 18 lending survey that saw banks report increased demand for loans and that they were offering easier conditions for granting and repaying credit.

Combined, the two "bode well for the eurozone economy", said Jennifer McKeown of Capital Economics, "but a further pick-up will be needed before the ECB can feel comfortable about reaching its inflation target." "We believe the ECB will go further down the asset buying road," IHS' Mr Archer said.

He suggested that the bank would likely extend its asset purchases past the existing deadline of March 2017, and might loosen rules on what bonds it is allowed to buy to make sure it doesn't run out of eligible targets.

ECB president Mario Draghi hinted at a press conference after October's meeting of the central bank governing council that more monetary policy moves were on the cards in December.

AFP