Euro zone: further acceleration of credit to the private sector

Posted 25 March, 2022

The growth of loans granted by banks to the private sector confirmed its momentum in February, as did the slowdown in monetary creation, against record inflation, the European Central Bank (ECB) said on Friday.

Loans to the private sector, adjusted for certain strictly financial transactions, grew by 4.8% over one year, against 4.6% in January and 4.2% in December, against a background of interest rates camping at their highest low.

In detail, loans to industrial and commercial companies increased over one year by 4.4% in February as in January, remaining far from the level around 7% observed a year earlier.

Loans granted to households also climbed 4.4% in February, a tenth of a point more than in January, due to a rebound in consumer credit while growth remained strong for loans linked to the purchase of housing.

The trend of recent months is confirmed with lower growth in the M3 money supply, at 6.4%, a score half as low as compared to one year, while public aid linked to the effects of the Covid-19 pandemic 19 normalized.

The M3 aggregate is used by the ECB as a leading indicator of inflation, including cash in circulation, loans over two years, and household and corporate deposits.

This slower rate of money supply creation, however, did not prevent inflation from reaching a historic level in February, at 5.8%, marking the eighth consecutive month of increase, largely due to the surge in energy price.

In the medium term, beyond 2024, the ECB however sees inflation “increasingly stabilizing around our target of 2%”, according to its president Christine Lagarde.

With this perspective, the institute wants to initiate a "normalization" of its accommodating policy which has been based for years on large asset buybacks and rates at their lowest.

But the very high uncertainty of the moment means that central bankers are also “ready to review” their strategy if necessary, according to Ms. Lagarde.

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