EUROZONE banks tightened lending criteria further in the third quarter as higher interest rates bite, a survey showed on Tuesday (Oct 24), fuelling expectations the European Central Bank will pause its hiking campaign.

Banks pushed on with tightening their standards for lending to businesses between July and September, according to the ECB’s quarterly bank lending survey.

The net percentage of lenders reporting they had tightened was slightly lower than the previous quarter, at 12 per cent, but nevertheless more than lenders had previously expected.

Banks also tightened criteria for lending to households further, and reported that demand for loans from firms and consumers fell more than had been expected.

The survey highlights that the ECB’s aggressive hikes in borrowing costs are feeding through to the economies of the 20 countries that use the euro by slowing economic activity, analysts said.

Since July last year, the central bank has hiked its key rates 10 straight times to tame surging inflation, although policymakers are expected to pause the tightening campaign at their upcoming meeting on Thursday.

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The survey “shows that weaker economic conditions and higher interest rates are having a clear impact on borrowing”, said ING economist Bert Colijn.

“This is a sign that monetary transmission is working rather forcefully at the moment and will be taken by the ECB as a reason not to hike further, especially given the fact that the ECB itself only expects the biggest impact of higher rates in early 2024.”

The eurozone outlook has also been darkening against the backdrop of rate hikes as well as a weakening global economy.

This was highlighted Tuesday by a closely watched Purchasing Managers’ Index (PMI) survey that showed activity in the single currency area slumped at faster pace in October. AFP