Euro zone firms' demand for loans dropped to the lowest on record last quarter and a further decline is likely over the summer as lenders continue to tighten access to credit, the European Central Bank said on Tuesday based on a survey of big banks.
A key input in policy deliberations, the survey is further proof that the bloc's economy is struggling to cope with rapid rate hikes and will strengthen arguments for the ECB to hold fire after what is set to be its ninth straight increase on Thursday.
During the current quarter banks expect a further drop in loan demand albeit of a "much smaller" scale than in the second quarter, the ECB added. While the percentage of banks reporting tighter credit standards was smaller than in the previous quarter, it remained above the survey's historical average and came on top of already substantial tightening, the central bank said.The ECB has already raised rates by a combined 4 percentage points in the past year, all in the hope this would restrict demand just enough to contain inflation without pushing the bloc into recession.
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