The volume of loans to the private sector in the eurozone expanded in October, with a bigger bounce recorded than the previous month, ECB data showed, suggesting a massive stimulus program may be working.
The data are for the European Central Bank a key indicator of economic health, as borrowing is a main source for corporate investment which in turn should boost the eurozone’s currently weak economy, AFP reported.
During October, loans accorded rose 1% from a year ago, compared with a growth of 0.6% recorded in September, an ECB spokesman said.
When certain strictly financial transactions are stripped out from the loans data, the trend remains the same—with credit accorded to households and companies rising 0.8% in October, up from 0.4% in September and 0.7% in August.
Growth in overall money supply, known as M3, also accelerated 5.3% in October from 4.9% in September.
The ECB regards M3 money supply as a barometer for future inflation.
The bank has launched a raft of policy measures to get credit flowing and to boost inflation, most significantly a massive program to buy more than €1 trillion ($1.1 trillion) worth of public sector bonds to pump liquidity into the system.
Monetary Stimulus Working
It has also pledged to examine if it needs to boost the so-called quantitative easing program when the ECB board meets next week.
But Thursday’s data “suggest that the monetary stimulus which the ECB has already delivered is working,” said Holger Schmieding from Berenberg Bank.
“The case for a stronger stimulus is thus not clear-cut,” he said.
Capital Economics analyst Jack Allen said however that the pace of growth in private sector loans remains slow even if it is accelerating from a month ago.
The data also do not suggest a strong economic pickup, he added.
“All of this is likely to have strengthened ECB policymakers’ conviction that more policy stimulus is needed,” Allen said, predicting a further rate cut and an expansion of the asset purchase program.
ECB chief Mario Draghi had stressed last Friday that the bank will “do what we must” to lift inflation as quickly as possible, remarks that have been interpreted as arguments for additional stimulus at the next policy meeting.
At the same time, Draghi has key detractors including Bundesbank chief Jens Weidmann, who cautioned at the same banking forum last week against hastily boosted stimulus measures.
“We should not forget that the monetary policy measures already taken still need time to fully feed into the economy,” he said.
