Eurozone Business Borrowing Records Highest Increase
The Eurozone business borrowing registered a record growth rate in January this year and this adds to the evidence that the fifteen-country Eurozone is preventing any credit shortage following the financial chaos all over the world. The percentage of lending to non-financial agencies at a yearly rate of 14.6% in January was the greatest since the introduction of the euro in 1999 and this data is as per the European Central Bank (ECB). The rate for the same in December of the previous year was 14.5%. Following the unexpected surge in the German business confidence the fresh figures may let the European Central Bank’s reluctance to cut interest rates grow even stronger and this even if the euro has moved beyond $1.50 for the first time.
There is a surprise rise in business borrowing even if there is enough proof that the banks have intensified their credit limits. And this seems to indicate that the eurozone companies were not restricting their plans for investment or expansion even if there is a gloomy US prospect. The Vice President of the European Central Bank Lucas Papademos, while speaking in New York expressed that the latest indications seem to suggest that the effect on the eurozone economy due to the turmoil in the financial market will not be great in proportion. The Vice President further added that there were no indications which suggested a credit shortage or even a slowing down in the rate of loan credit growth to the private sector. On the contrary, the Vice President said that, the rate of loan credit growth to the private sector has been quite strong especially the speed of credit expansion in non-financial institutions.
Mr. Papademos further said that the restricted credit limits put in force by the banks has happened from quite a lose level and it also has not considerably restricted the accessibility of credit. Economic analysts are of the opinion that the great growth in lending figures can be the sign of the difficulty banks have experienced to shift loans off their books. However the European Central Bank led by President Jean-Claude Trichet has out rightly rejected this as a factor. The ECB has maintained its main policy rate at 4% from June last year. Unicredit’s Marco Kramer, in Munich told that uncertainties and doubts regarding credit shortage or a drop in credit demand are mostly blown out of proportion and they are just a part of the explanation by the ECB President. He further said that he expected the first cut in the benchmark rate to come towards the end of the second quarter.
The ECB is expected to conduct the meeting for fixing the interest rates in the next week and is happy about the moderate slowdown in the housing markets of eurozone. The fresh data indicated slower rate of mortgage lending which had increased at a yearly rate of 6.9% in January which is a drop from its earlier 7.1% in December last year.
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