World Economy

Borrowing in Eurozone Rises

Inflation remains stubbornly short  of the ECB target of 2%.Inflation remains stubbornly short  of the ECB target of 2%.

Growth in lending to eurozone businesses and households picked up in November, official data showed Friday, in an encouraging sign for European Central Bank chiefs as they begin withdrawing support for the economy.

The pace of growth in loans to the private sector added 0.1 percentage points last month to reach 2.9% year-on-year, according to European Central Bank figures adjusted for some purely financial transactions, AFP reported.

Central bank governors watch loan growth closely as an indicator of whether policies designed to stimulate growth and inflation in the 19-nation single currency area are working.

A breakdown of the figures showed that growth in credit to households inched up by 0.1 percentage points, reaching 2.8% in November.

Meanwhile, expansion of lending to businesses picked up further after a leap in October, adding 0.2 percentage points last month to reach 3.1% year-on-year.

The ECB has offered cheap loans to banks, set interest rates at historic lows and pumped €2.2 trillion ($2.64 trillion) into the financial system through bond-buying, hoping to power growth and boost inflation to its target of just below 2%.

Growth has picked up as the eurozone economy recovers from the aftershocks of the financial crisis, prompting policymakers’ October decision to slash their monthly bond purchases by half from January, to €30 billion.

But inflation remains stubbornly short of the central bank target, with ECB chiefs prepared to reopen the cash floodgates if it falls too far.

Meanwhile, EUR/USD continues to rally, as the pair trades at its highest level since September 22. In Friday trade, EUR/USD was trading at 1.1980, up 0.33% on the day. The final trading day of 2017 has just one key event, German Preliminary CPI. The indicator is expected to accelerate to 0.5% in December. In the eurozone, M3 Money Supply and Private Loans both matched their estimates of 4.9% and 2.8%, respectively.

Christmas week is traditionally light on economic releases and the markets are in slow gear until after the New Year. Still, the euro has looked sharp and is up about 1.0% this week, with the symbolic 1.20 line in striking distance.

In a nod to stronger economic conditions in the eurozone, the ECB announced in October that it would begin tapering its monthly bond purchases in January, from €60 billion to 30 billion. ECB President Mario Draghi and company are playing it safe, however, as the ECB has extended the purchases through September 2018.  


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