Eurozone Loan Growth Improves; M3 Logs Slower Expansion

(RTTNews) - Eurozone lending to private sector grew at a faster pace in December on falling interest rates and the broad money supply logged a slower expansion, data from the European Central Bank revealed Wednesday.

Despite tightening credit conditions, adjusted loans to the private sector gained 2.0 percent compared to a 1.5 percent rise in November.

Among the borrowing sectors, growth in loans to households increased to 1.1 percent from 0.9 percent in November. Likewise, loans to non-financial corporations climbed 1.5 percent, faster than the 1.0 percent rise a month ago.

Claims on the private sector increased at a pace of 1.7 percent in December after a 1.3 percent rise in November.

The broad money supply M3 logged an annual growth of 3.5 percent in December, slower than November's 3.8 percent rise. In the three months to December, M3 growth averaged 3.6 percent.

The narrow measure M1 that comprises currency in circulation and overnight deposits advanced 1.8 percent in December compared to 1.5 percent rise in November.

Capital Economics' economist Jack Allen-Reynolds said the ECB data provides a rosier picture of the economy's near-term prospects than the latest business surveys and suggests that the impact of the ECB rate cuts is feeding through.

However, the economist expects the bank to cut interest rates significantly this year.

The ECB is set to announce its policy decision on Thursday. The bank is widely forecast to cut its benchmark rates by 25 basis points.

ING economist Peter Vanden Houte said he expects the ECB to continue its very gradual easing path, justifying tomorrow's rate cut as "diminishing the degree of restrictiveness".