Slowdown could boost chance of ECB rate cuts

Slowdown could boost chance of ECB rate cuts

Figures from the European Central Bank show that growth in the euro zone’s money supply, a key indicator of demand in the economy, slowed again in December. This could accelerate the ECB into carrying out further cuts to mortgage interest rate cuts.

The M3 indicator rose at an annual rate of 1.6% last month, following a gain of 2% in November. The slowdown was unexpected, as analysts had been pencilling in growth of 2.1% for December.

The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly. The bank seeks to keep euro zone inflation below but close to 2%, but it stood at 2.7% in December.

Meanwhile, the annual rate of growth in euro zone bank loans to the private sector slowed substantially to 1% in December from 1.7% in November, the ECB said.

The ECB cut its key interest rate by a quarter of a percentage point to 1% in December, arguing that future inflation is likely to slow as the euro zone debt crisis puts the brakes on economic growth in the single currency area. The latest M3 data is likely to bolster the case for more rate cuts in the euro zone as it seeks to stave off recession.

Leave a Reply