Eurozone lending up in August

LENDING in the Eurozone increased in August by the fastest rate in more than a year, the European Central Bank (ECB) said yesterday.

Loans to the private sector were 1.2 per cent higher in August than a year earlier, the fifth monthly rise in a row and the fastest growth since June last year, the ECB said.

Meanwhile, loans to companies also rose in August but remained negative over the year down 1.1 per cent.

The ECB stressed loans to companies typically lag the economic cycle but added it was keen to see a sustained resumption in lending to firms, especially after banks had benefitted from two years of cheap and generous liquidity supply.

Loans to households rose at an annual rate of 2.9 per cent in August up from 2.7 per cent the previous month, with loans for house purchase up 3.5 per cent over the year.

Overall, money supply growth also jumped, although it remained short of the level the ECB sees as a warning of inflation.

M3 money supply, the amount of cash readily available to spend, which is a leading indicator of inflation, jumped 1.1 per cent in August compared with a year earlier and against expectations of a 0.3 per cent rise. It was also the strongest growth in a year.

At 0.5 per cent, the three-month moving average of M3 growth remains well below the ECB’s reference rate of 4.5 per cent, above which the bank would see a danger to medium-term price stability.

Societe Generale economist James Nixon warned: “If this kind of growth is sustained month after month, then maybe in six months time the ECB will start thinking about raising interest rates, but it is still early days.”