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ECB Says Private Lending Contracted for 11th Month in March

Lending to households and companies in the euro area contracted for an 11th month in March as the region struggled to emerge from recession.

Loans to the private sector fell 0.8 percent from a year earlier after also dropping an annual 0.8 percent in February, the Frankfurt-based European Central Bank said today.

Demand for loans declined in the first quarter and euro-area banks tightened credit standards amid economic uncertainty, the ECB’s quarterly Bank Lending Survey showed this week. ECB President Mario Draghi said this month that funding conditions for small- and medium-sized firms are “tight” and policy makers are looking at options to support an economic recovery.

“There’s a high spread between the so-called core and the euro-area periphery,” said Alexander Koch, an economist at UniCredit Group in Munich. “It’s very easy for a German company to get a loan while businesses in southern Europe struggle to get capital.”

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, fell to 2.6 percent in March from 3.1 percent in February.

M3 grew 3 percent in the three months through March from the same period a year earlier. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.

Banks including UBS AG, Royal Bank of Scotland Group Plc and Nomura International Plc forecast that the ECB will cut its benchmark rate to a record low of 0.5 percent next week.

Still, ECB Executive Board member Joerg Asmussen said yesterday that a rate reduction may have only a limited effect on countries in the periphery.

“The pass-through of rate cuts to the periphery would be limited, and this is where they are most needed,” Asmussen said. “At the same time, rate cuts would further relax already unprecedentedly easy financing conditions in the core.”

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