Tuesday, July 25, 2023 1:59 PM EDT
The second-quarter bank lending survey indicates that monetary tightening is having a significant effect on the lending channel. This adds to economic weakness for an economy that is already stagnating. While it should alleviate inflation pressures down the road, it is unlikely to sway the ECB from another 25 basis point hike on Thursday.
The European Central Bank's own bank lending survey does not provide an optimistic view of economic activity in the months ahead. With both credit standards tightening and demand for loans weakening, investment activity is set to weaken further. For the ECB, this will help to soften inflation pressures later on. The percentage of banks that are tightening credit standards is lower than in the first quarter, but overall the net percentage is still substantial at 14% compared to 27% between January and March. Risk perceptions are the main contributor to tightening standards at the moment.
Demand for borrowing is down further according to the survey and higher interest rates are an important contributor to the weakening demand for loans. This shows that the tightening effects from monetary policy are significant at the moment and will translate into weaker investment over the remainder of 2023. In this already weak economy in which growth has stagnated and recent indicators were weakening – the eurozone PMI for July indicated contraction – this has become a bigger point of debate for the ECB at the coming meetings to determine the end of the hike cycle.
Bank lending has weakened substantially since the start of ECB tightening, but it has been a gradual process so far. The bank lending survey continues to show significant tightening effects, but so far there has not been a cliff-edge effect on credit. While the ECB will take these results as a clear sign that the record hike cycle will have a substantial effect, we don’t expect it to influence Thursday’s rate decision too much. We expect the ECB to hike by 25bp in July.
More By This Author:
When Can The Bank Of Japan Be Confident That Inflation Is Sustainable?
Indonesian Central Bank Extends Pause Again To Preserve FX Stability
The Commodities Feed: Supply Risks Grow
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...
more
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.
less
How did you like this article? Let us know so we can better customize your reading experience.