Two factors allow the “doves” of his board of directors European Central Bank hope for slower growth interest rates and for an early end to the monetary tightening cycle in view of the new central bank meeting starting today and ending on Thursday.

First, it is now becoming clear that the negative impact of monetary tightening and the recent banking turmoil is being felt: falling demand for corporate loans is reaching 2008 levels, and credit tightening has reached levels seen during the debt crisis. Eurozone.

His second image inflation: Eurozone headline inflation rose in April, but core inflation, which excludes food and energy prices, eased unexpectedly.

These two developments strengthen the case for a modest increase in ECB interest rates this Thursday, by 25 basis points to 3.25% instead of 50 basis points. who would like enough “hawks” of the board of directors.

The March meeting of the ECB took place against the backdrop of banking turmoil and did not have an immediate or noticeable impact on the eurozone banking sector or the real economy. But the debate at the March meeting showed growing concern among ECB officials, more than ever focused on the release of bank lending data and any signs of the potential impact of monetary tightening for now.

Indeed, lending conditions have now clearly “tightened” since the onset of the banking crisis, according to ECB bank lending survey results released yesterday. Credit tightening is at its highest level since 2011 and the eurozone debt crisis, as the net percentage of banks reporting tightening in the first quarter was 27%.

At the same time, demand for loans also fell sharply due to higher interest rates, lower investment and a weaker housing market, the survey showed. In particular, 38% of banks reported a decline in demand for corporate loans in the first three months of this year, the largest percentage since the 2008 global financial crisis. At the same time, the decline in mortgage demand remained strong and was close to the decline reported last quarter. According to ING, the drop in demand for corporate loans was much stronger in the euro area. In the first quarter of the year, German banks were the only ones to report a drop in demand for corporate loans, now France, Italy and Spain are also reporting big drops.

This fall in demand for new loans was also reflected in the dynamics of monetary policy in March. The annual growth rate of adjusted household loans declined to 2.9% in March from 3.2% in February, and the annual growth rate of corporate loans fell to 5.2% in March from 5.7% in February. More importantly, after the February decline in monthly flows, monthly private sector credit flow was only marginally positive. In March, the outflow of deposits continued, and if in February this outflow was due to retail deposits, now corporate clients are also taking deposits.

At the same time, Eurostat released inflation data for April yesterday. In particular, inflation in the Eurozone surprised growth and amounted to 7.0% yoy in April from 6.9% yoy in March. However, structural inflation, which is mainly monitored by the ECB, eased, albeit marginally, to 5.6% from 5.7% in March.

Surprise

An unexpected surprise on the front of structural inflation is seen as an additional argument in favor of a less aggressive policy of the ECB. “The new inflation data clearly highlights the need for further interest rate hikes. The only open question, however, is the size of the increase. Weaker-than-expected data on GDP growth last week and weak new data on credit growth and demand strengthen arguments for a slowdown in the pace and scope of rate hikes. For this reason, we support our call for a 25bp increase. units this Thursday,” emphasizes Carsten Brzeski, chief economist at ING.

Inflation remains high, analysts say, and although it is expected to fall further, the ECB is not yet ready to ease the situation. The central bank doesn’t want to repeat the mistakes of the past and underestimate inflation, so it won’t easily lay down arms to raise rates. Moreover, according to market estimates, by the end of the summer the ECB will raise interest rates to 3.75%.