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The
ECB has been raising interest rates at the fastest pace on
record over the past year to combat stubborn inflation,
weakening demand for bank credit and slowing everything from the
housing market to construction and consumer spending.
Lending growth to businesses in the 20-nation currency bloc
dipped to 4.0% in May from 4.6% a month earlier, while household
credit growth slowed to 2.1% from 2.5%, its lowest level since
the end of 2016, ECB data showed.
The ECB is raising rates in the hope of slowing demand just
enough to ease price pressures and cut inflation from over 6%
back to its 2% target.
The transmission of higher rates to bank rates has been quick
and lending is clearly impacted but the hit to overall demand
has been more muted, leading some policymakers to question if
rates hikes still work the same way as in the past.
For now, the weak lending figures will not change ECB plans to
raise rates in July and possibly beyond, economists said.
"The fast-paced rate hikes are set to still have a further
dampening effect on economic activity as monetary transmission
continues to work its way through the system," ING economist
Bert Colijn said.
"Still, today's numbers do not show a cliff-edge drop that would
change the ECB's thinking on further rate hikes."
The ECB's 3.5% deposit rate is almost certain to rise to 3.75%
in July and markets see another move to 4% in either September
or October.
May's flow of fresh loans to businesses was a mere 3 billion
euros, a relatively modest figure but above the negative
readings recorded in most months so far this year.
Growth in the M3 measure of money circulating in the euro zone
fell to 1.4% from 1.9%, coming just below expectations for 1.5%
in a Reuters survey.
(Reporting by Balazs KoranyiEditing by Francesco Canepa snd John
Stonestreet)
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