FRANKFURT—Euro-zone banks increased lending to businesses in July, reversing the trend of the previous two months, after the European Central Bank slashed interest rates to record lows and flooded the banking system with cheap loans.
Banks increased their lending to firms by €8.06 billion ($10.07 billion) on the month in July, after a downwardly revised fall of €3.48 billion in June, the ECB said Tuesday. Lending to households fell by €7.61 billion, after rising by a downwardly revised €3.77 billion June.
Bank lending to governments increased by €11.56 billion on the month, on top of the hefty rises in the previous months, an indication that banks continued to spend the ECB funds on financing European governments because of the potential gains on high sovereign bonds yields.
Poor demand for loans from firms and households due to tough economic conditions and the sovereign debt crisis has been a driver for anemic lending, the ECB has said. Companies have scaled down their production-related investment for the past six months, the ECB said in its latest quarterly lending survey released in July. Lending has remained weak despite the cheap loans from the ECB, which also loosened the rules on the collateral it accepts from banks in exchange for its loans and cut its benchmark interest rates to an all-time low in July.
The annual growth of the broad monetary aggregate known as M3 accelerated in July to 3.8%, compared with June's unrevised 3.2% growth rate, sharply above the median expectations of analysts in a Dow Jones Newswires poll for a growth rate of 3.3%.
In monthly terms, M3 grew 0.7% in July, or €70.5 billion, after an unrevised monthly increase of 0.2% in June.
M3 increased 3.4% on the year on average in the May-July period, up from 3.0% the previous three months. Experts polled by Dow Jones Newswires had forecast the three-month moving average growth rate at 3.1%. The three-month average still remains well below the ECB's "reference value" of 4.5%, which it considers to be consistent with its price-stability mandate of an inflation rate of just below 2% over the medium term. That indicates that inflation pressures have remained muted in the euro zone.
