Draghi announces progress in lending

European Central Bank president Mario Draghi said officials are seeing progress in lending as a slump in credit eases and surveys signal improvement in loan demands.

We are “seeing some progress now,” Draghi told lawmakers at the European Parliament in Brussels yesterday. “Credit flows are still subdued, but they decline at a lower rate.

“We also see from the bank lending survey, we see progress on that front. It’s still limited.”

Draghi’s comments break his silence before the March 6 decision this week, when policy makers will come armed with updated quarterly forecasts after a month of studying new economic data from the region.

Officials have struggled to revive lending at a time when the euro zone remains hampered with the legacy of the debt crisis and a record-long recession.

“It may be difficult for a bank to give credit to a company which doesn’t have clients,” Draghi said. “So, fortunately, this picture is in a sense, it’s improved a lot, it’s improved a lot. We start seeing better signs both from the surveys and to some timid extent from the data as well on credit and M3 data that seem to indicate some improvement.”

Lending to companies and households in the euro region contracted for a 21st month in January. It fell 2.2% from a year earlier, after shrinking 2.3% in December, according to data released by the ECB last week.

Draghi repeated that policy makers are looking at ways of spurring credit in the euro zone.

“You hinted at linking further credit to the banks by the ECB to their lending to the real economy, so I think you hinted at a Funding for Lending Scheme as it was run in another jurisdiction,” Draghi told one lawmaker, in reference to the Bank of England’s credit-boosting measure. “This is certainly one of the instruments that we have in our artillery, that we have in our catalogue, and we’re still thinking about and reflecting on this.”

Draghi also reiterated that officials see inflation staying low for a “protracted” time and there are risks associated with that. Consumer prices rose an annual 0.8% in February, compared with the ECB’s target of just below 2%.

“The longer it stays at the current level,” the greater the risk that it won’t go back towards 2% in a “reasonable” time, he told lawmakers.

After inflation, economic sentiment and growth data all exceeded economist forecasts in the past month, most economists say that the ECB won’t lower its interest rate this week.

In a Bloomberg survey of 54 economists, only 14 predict a cut. Of those, eight see a 15-basis point move to 0.1%, including forecasters at Commerzbank and Morgan Stanley. Economists at BNP Paribas, Credit Suisse Group and four others predict a 10 basis-point cut to 0.15%.

Only one of 40 economists predicts the deposit rate will fall to minus 0.1% from zero.