Credit crunch for households

Growth in euro area bank loans to the firms and private households remained very subdued in July, the European Central Bank (ECB) said in its monthly money supply report on Tuesday.

Credits granted to the private sector rose by a meager 0.1 percent last month, after contracting by 0.2 percent in June. Analysts expected the situation to remain tough for quite some time to come with no end to the eurozone debt crisis in sight.

"We'll see further weakness in credit to the private sector in the coming months, mainly explained by weak economic prospects," said UniCredit Economist Loredana Federico.

ECB urged to react

Bank loans handed out to companies increased by eight billion euros ($10.02 billion) in July, but were unable to offset a decline by 14 billion euros in the two preceding months.

The ECB report bore out that, by and large, the central bank's cut in interest rates had not fed though to the real economy. "It's likely that the ECB will use the meager loan momentum as another reason for a new bond purchase program, since the intervention in short-term markets may help to tackle the loan problem," Commerzbank Economist Michael Schubert commented.

Analysts also expect the ECB to cut its lead interest rate once again, letting it sink to 0.5 percent from an already historically low 0.75 percent at the moment.

hg/msh (Reuters, AFP)