LENDING IN the euro zone is contracting at an increasingly rapid pace, strengthening the case for European Central Bank caution next week when it unveils fresh steps to unwind emergency measures taken to combat the economic crisis.
Bank lending to the private sector fell year-on-year for the first time in September, but ECB data for October, released yesterday, showed the annual rate of decline accelerated from 0.3 per cent to 0.8 per cent.
After the worst recession in Europe since the 1930s, the euro zone returned to growth in the third quarter, when gross domestic product rose 0.4 per cent. But the slowdown in bank lending highlighted the fragility of the recovery. Lending to business, which saw the sharpest decline, was “alarmingly weak”, said Ken Wattret, European economist at BNP Paribas.
The ECB is preparing to announce next Thursday revisions to liquidity-boosting measures, which have supported the financial sector over the past year.
Jean-Claude Trichet, president, is expected to confirm that an offer to euro-zone banks of unlimited 12-month loans planned in December will be the last.
The provision of such 12-month liquidity has come to dominate the central bank’s operations. In June, banks absorbed €442 billion in one-year loans.
Previously the ECB has charged an interest rate of just 1 per cent – the same as its main policy rate.
But policymakers are considering imposing a surcharge on 12-month liquidity provided next month, or linking the interest rate to future moves in the main policy rate. – (Copyright The Financial Times Limited 2009)
