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6 May 2015
Eurozone bank lending rates unchanged in March despite ECB QE – ING
FXStreet (Barcelona) - Teunis Brosens of ING, explains that bank lending rates hardly changed in the Eurozone in March, despite the start of QE, and the rates report further provides ammunition for ECB doves to argue that QE has not succeeded in fully restoring the monetary transmission yet.
Key Quotes
“Interest rate statistics by the ECB show that the “composite cost of borrowing” for businesses, a weighted average of new loans taken out, was unchanged at 2.3% in the euro area. Rates were still at 3.0% a year ago, but most of the drop was already realised in the run-up to QE last year.”
“The composite cost of borrowing averaged around 4.0% in the pre-crisis years. Borrowing still comes at a premium for SMEs. The average rate on loans smaller than €250k with a maturity over 1 year was unchanged at 3.1% in March, compared to 3.9% a year ago.”
“Rates did drop slightly for households in March. The composite cost of mortgage borrowing edged down to 2.3% in March, from 2.4% in February and 3.0% a year ago.”
“All in all, there was no sudden downward effect on lending rates in March when the ECB commenced its actual bond buying. That said, bank lending rates have come down substantially over the past year, and anticipation of QE will have played a part in that. Risk premiums and costs put a floor in bank lending rates, limiting the scope for further rate decreases in the months ahead.”
“With the cross country variation in bank lending rates remaining elevated, this rates report provides ammunition for ECB doves to argue that QE has not succeeded in fully restoring the monetary transmission channel yet.”
Key Quotes
“Interest rate statistics by the ECB show that the “composite cost of borrowing” for businesses, a weighted average of new loans taken out, was unchanged at 2.3% in the euro area. Rates were still at 3.0% a year ago, but most of the drop was already realised in the run-up to QE last year.”
“The composite cost of borrowing averaged around 4.0% in the pre-crisis years. Borrowing still comes at a premium for SMEs. The average rate on loans smaller than €250k with a maturity over 1 year was unchanged at 3.1% in March, compared to 3.9% a year ago.”
“Rates did drop slightly for households in March. The composite cost of mortgage borrowing edged down to 2.3% in March, from 2.4% in February and 3.0% a year ago.”
“All in all, there was no sudden downward effect on lending rates in March when the ECB commenced its actual bond buying. That said, bank lending rates have come down substantially over the past year, and anticipation of QE will have played a part in that. Risk premiums and costs put a floor in bank lending rates, limiting the scope for further rate decreases in the months ahead.”
“With the cross country variation in bank lending rates remaining elevated, this rates report provides ammunition for ECB doves to argue that QE has not succeeded in fully restoring the monetary transmission channel yet.”