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Finance

Posted By Global Banking and Finance Review

Posted on January 29, 2025

Lending to euro zone businesses surges after rate cuts

FRANKFURT (Reuters) -Bank lending to firms in the 20-nation euro area picked up last month, indicating that rapid interest rate cuts have started to flow through to the real economy, despite a gloomy lending survey, European Central Bank data showed on Wednesday.

The ECB cut interest rates four times last year and another four cuts are expected in 2025, with the first likely on Thursday, as it shifts its focus from fighting inflation to propping up anaemic economic growth.

Credit to businesses expanded by 1.5% in December, the highest rate in a year and a half, and above the 1.0% recorded in November, even as the overall economy barely grew.

At 39 billion euros, the monthly flow of loans to businesses was the highest since August 2022, despite banks tightening lending standards and predicting even more tightening ahead.

Household lending growth was also trending upward, expanding by 1.1% after 0.9% a month earlier to hit its best rate since Aug 2023.

Like for firms, the monthly flow of loans was also strong, hitting a two-year high at 14 billion euros.

At 3%, the ECB's key interest rate is still high enough to restrict economic growth but could be around the "neutral" by mid-year, an undefined level that does not stimulate growth but also does not hold it back.

The more volatile M3 measure of money circulating in the economy, sometimes an indicator of future economic growth, expanded by 3.5%, trailing forecasts for a 3.8% rise in a Reuters poll.

(Reporting by Balazs KoranyiEditing by Bernadette Baum and Christina Fincher)

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