Lending to euro zone households dips in July: ECB

FRANKFURT (Reuters) - Loans to households in the euro zone fell in July, reflecting weak domestic demand, while loans to companies ticked up only slightly, suggesting a credit squeeze persists despite ECB efforts to provide liquidity, data showed on Tuesday.

The data is likely to reinforce the case for the European Central Bank to cut interest rates when it meets next week to simulate the euro zone economy, which is on the brink of recession.

The ECB's latest set of monetary data showed that monthly flows of bank loans to households in the euro zone fell by 8 billion euros in July after rising by 4 billion euros in June.

The flow of loans to non-financial firms rose by 8 billion euros after falling by 3 billion euros in June. On the year, loans to the private sector inched up just 0.1 percent in July.

The euro zone's debt crisis has hit the currency union's southern economies especially hard, putting the bloc on the verge of recession and causing companies and households there to hold back on investments and spending.

"It shows that the ECB, having cut interest rates a few times already, is not having much luck in trying to offset a significant credit squeeze," said Guillaume Menuet, economist at Citi. "This report is not strong enough to indicate that there is a significant pick-up in credit going on."

"We expect more rate cuts to happen as the economy deteriorates," he added, having pencilled in another 25 basis point cut for September.

Tuesday's ECB data also showed that a rush by consumers and firms to pull their money out of Spanish banks intensified in July with private sector deposits falling almost 5 percent.

The ECB is likely to take the loan data into account when it meets next week to set interest rates for the euro zone's 17 economies, but with rates already at a record low of 0.75 percent, another 25 basis point cut - as expected by economists in a Reuters poll - would be seen as largely symbolic.

The monthly Reuters poll for August also predicted the euro zone economy, which shrank by 0.2 percent in the second quarter, would contract by the same amount in the current quarter, pushing the region into recession.

Euro zone M3 money supply - a more general measure of cash in the economy - grew at an annual pace of 3.8 percent in July, picking up from 3.2 percent in June and above the consensus of 3.2 percent from analysts polled by Reuters.

(Reporting by Eva Kuehnen; Editing by Susan Fenton)

Source: http://news.yahoo.com/lending-euro-zone-households-dips-july-ecb-100547199--business.html

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