Demand for Cheap Credit Falls Short of Expectations

As part of the ECB’s monetary easing plan, the central bank has made low-interest rate loans available to banks across the region, provided they use the funds for consumer and business loans. Although the goal is to expand credit creation and economic growth, the lack of participation in the latest loan auction presents an ominous sign for those hoping for a quick turnaround. In the latest auction, the ECB injected 130B Euros into the banking system, which was significantly less than expectations. This lack of demand indicates that either banks aren’t willing to lend or don’t see demand for loans, or a combination of both. The news also increases the odds that the ECB will engage in a bond purchasing quantitative easing program, expected by most to launch in Q1 of 2015. With the Eurozone at risk for recession and deflation, interest rates across the region remain at very low levels and are slightly negative for overnight interbank loans. We have written many times over the past few months that U.S. rates are being held down artificially due to weakness overseas. This data does nothing to alter that thesis.  
 
Source: Financial Times