Eurozone Bank Lending Growth Weakens Further

(RTTNews) - Growth in the euro area bank lending continued to weaken and the narrow measure of money supply contracted for the first time on record, reflecting the impact of monetary policy tightening. The annual growth rate of credit to the private sector slowed to 3.8 percent from 4.3 percent in December, the European Central Bank reported Monday.

Similarly, adjusted loans to the private sector climbed 4.9 percent, weaker than the 5.4 percent rise in December.

Loans to both households and businesses weakened further in January. The growth rate in loans to households eased to 3.6 percent from 3.8 percent and that to non-financial corporations slowed to 6.1 percent from 6.3 percent.

The M3 monetary aggregate grew 3.5 percent from the last year, slower than the 4.1 percent increase in December. The annual growth slowed for the fourth straight month to hit the lowest rate since November 2014. This was also weaker than economists' forecast of 3.9 percent.

At the same time, the narrow measure M1 that comprises currency in circulation and overnight deposits fell 0.7 percent annually in January after a 0.6 percent gain in December. This was the first fall on record.

Data showed that tightening efforts of the ECB are having a clear effect on money supply and private-sector borrowing, which will have a dampening impact on economic growth and inflation in 2023, ING economist Bert Colijn said.

"We consider the impact of the hike cycle an underappreciated downside to economic activity for this year," the economist added.

The central bank had raised its benchmark rates by 50 basis points at the February meeting, and signaled a similar move in March, when the council will evaluate the future path of policy rates.

The ECB Bank Lending Survey released in January showed a further tightening of credit standards as well as weak demand for borrowing from households and businesses.