ECB confronts more signs of weak growth
FRANKFURT, Germany (AP) — The European Central Bank is facing more signs of weakness in the economy of the 18 countries that use the euro as it weighs whether to add more stimulus.
Official data on Wednesday showed that bank lending to companies fell again in December, by 3 percent. That was an improvement over the previous month’s 3.8 percent fall but indicates economic activity remains subdued.
The figures suggest the ECB’s stimulus measures, such as low interest rates and generous credit to banks, are still not fully reaching the wider economy. Another key indicator, the growth of the supply of money in the economy, slowed to 1 percent, far below the 4.5 percent guideline.
The ECB says it stands ready to take more action if it sees signs that the recovery could stall. That could mean another rate cut or more loans to banks.
Wednesday’s data add to worries about low inflation. Inflation was only 0.8 percent in December, well below the bank’s goal of just under 2 percent. That has raised concerns about deflation, a crippling downward spiral of prices and wages that chokes off growth. Despite warnings from some economists, Draghi has said the eurozone is not falling into deflation.
The ECB is also keeping an eye on short-term interest rates in money markets after a brief rise in the rate at which banks lend to each other overnight. That could be a problem if it persists because the ECB wants to keep interest rates as low as possible so that higher borrowing costs are not passed along to the economy.
Analysts say the reasons for the rise Jan. 16-21 were not entirely clear but have noted that the amount of cash in the banking system has fallen as they repay loans they had received from the ECB.
The rates have since dropped back, but the ECB has said that a clear rise in short-term rates would be one thing that could push it to take more action.
The bank holds its next interest rate meeting February 6. Economists at Commerzbank say that low inflation means the ECB could cut its benchmark rate to 0.1 percent at its monthly meeting in March.