European Loan Growth Accelerated in January After ECB Tender

Growth in loans to households and companies in the 17-nation euro area accelerated in January after the European Central Bank injected a record amount of cash into the banking system.

Loans to the private sector grew 1.1 percent from a year earlier after gaining an annual 1 percent in December, the ECB said today. The rate of growth in M3 money supply, which the Frankfurt-based ECB uses as a gauge of future inflation, increased to 2.5 percent from 1.5 percent.

The central bank is flooding the market with cheap money to head off a credit crunch, encourage lending to companies and consumers and spur demand for unsecured bank debt. Financial institutions will seek 470 billion euros ($633 billion) in a second round of unlimited three-year funds on Feb. 29, approaching the 489 billion-euro take-up at the first such operation in December, according to the median estimate of 28 analysts surveyed by Bloomberg News.

While banks used the initial three-year loans to repurchase bonds coming due in the first quarter, they will be more inclined to use the second batch “to expand credit into the real economy,” ECB President Mario Draghi said yesterday after a meeting of finance officials from the Group of 20 nations in Mexico City.

M3 grew 2 percent in the three months through January from the same period a year earlier, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.

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