Pace of eurozone lending edges higher in April: ECB

27th May 2011, Comments 0 comments

The rate of growth in eurozone bank loans to the private sector rose slightly in April, the European Central bank said on Friday.

Lending gained 2.6 percent from the level in the same month last year, a little better than the rate of 2.5 percent in March, an ECB spokesman said, referring to this important leading indicator of business activity.

"All in all, loan momentum continues to be rather low. However, this is unlikely to deter the ECB from raising rates further in the coming months," Commerzbank economist Michael Schubert commented.

The central bank said that eurozone money supply as measured by its M3 indicator grew by 2.0 percent in April, a rate that was lower than the increase of 2.3 percent the previous month.

Analysts polled by Dow Jones Newswires had expected an increase to 2.4 percent in April.

The ECB regards the M3 figure as a key guide to pressures likely to affect inflation in the medium term.

The ECB also said that growth of its M1 indicator of overnight deposits slowed sharply to 1.7 percent from 3.0 percent.

Lending and money supply data are widely-followed indicators of consumer demand and overall economic activity.

Rising figures point to increased demand, which normally means inflation could also begin to pick up and incite the ECB to hike interest rates.

The central bank raised its key interest rate to 1.25 percent in April, and economist believe it could reach 1.75 to 2.0 percent by the end of the year.

"Money supply growth remains well below its target rate and in itself is not an inflationary concern," IHS Global Insight's chief European economist Howard Archer said.

"Nevertheless, this is unlikely to prevent the ECB from raising interest rates by a further 25 basis points from 1.25 percent to 1.50 percent in the near term," probably in July, he added.

A breakdown of the data showed that loans to households grew by 3.4 percent, stable on the month, while loans to non-financial corporations increased by a modest 1.0 percent, slightly better than the 0.8 percent level a month earlier.

"The underlying pick up in lending to corporates remains tortuously gradual which suggests that many eurozone banks are still reluctant to lend, particularly to what they perceive to be as riskier businesses," Archer said.

© 2011 AFP

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