Less Loans in the Eurozone : More Pressure on ECB

Written by | Saturday, November 30th, 2013

A contraction in loans to households and companies in the eurozone intensified last month, in turn increasing pressure on the European Central Bank (ECB) to do more to give a boost to euro zone’s slow recovery. The ECB already decreased its principal refinancing rate earlier in November to 0.25 percent, but the central banks of the eurozone member states logged very low interest rates, which are not spread equally throughout the currency block.
According to the ECB, loans to companies shrank by 2.1 percent last month compared to October last year. The ING economist Peter Vanden Houte said that even though the ECB cut its main refinancing rate, more pressure is likely to loom over the ECB especially due to decreasing credit supply. He added that the ECB could potentially start contemplating specific measures to kick-start credit growth before its policy meeting takes places next week.
Such measures are believed to include a new package of long-term loans to banks including conditions on lending the money attached, which is similar to Britain’s lending scheme funding. Yet, ECB’s Vitor Constancio refused to confirm that the bank was preparing new round of such long-term loans. He said that banks had enhanced their liquidity positions, which is why pressure is not the same as it used to be. Investors commented that they are ready to help the eurozone recovery as the eurozone inflation rate is at about 0.7 percent, which is below the ECB target of something below 2 percent.

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