(RTTNews) - Lending to Eurozone firms and households registered its first annual fall on record in September, validating the central bank’s highly cautious policy stance. Meanwhile, broad money supply grew at the slowest pace since the creation of the single currency.

According to data from the European Central Bank, loans to the private sector decreased an annual 0.3% in September, reversing a 0.1% growth in the previous month and a 0.6% rise in July. Loans to households were also down by 0.3% from a year ago. At the same time, loans to non-financial companies decreased in September by 0.1% versus August’s 0.7% growth.

M3, the broad measure of money supply, increased at a slower pace of 1.8% year-on-year in September, down from 2.6% in August. Economists had expected the money supply growth to ease to 2.2%. The three-month average of the annual growth rates of M3 over July to September decreased to 2.5% from 3.1% in the three months ended August.

Regarding the main components of M3, the annual rate of growth of M1 eased to 12.8% in September from 13.6% in August. The short-term deposits other than overnight deposits decreased 5.3% annually in September and marketable instruments dropped 8.8%.

Commerzbank analyst Michael Schubert wrote in a note that the turning-point in loan growth might not be reached before early 2010, despite the economic recovery in the second half of this year. In the ECB’s view, it is not the time to be complacent, said the economist. The weak momentum of loans to private sector imply that the ECB would possibly stick to its cautious stance.

On October 8, the ECB Governing Council, led by President Jean-Claude Trichet, had left its key interest rate, which is the interest rate on main refinancing operations, at 1%. The ECB maintained the rate unchanged at a record low for the fifth month in a row.

According to Martin van Vliet, a senior economist at ING Bank, the broad money and credit figures suggest a very subdued inflation in the Eurozone for the medium term, despite the recent signs of recovery. The data will put pressure on the central bank to maintain a cautious wait-and-see policy stance at the coming week’s monetary policy meeting.

“With the money and credit figures continuing to point to a subdued inflation outlook, the ECB looks unlikely to start unwinding its monetary stimulus anytime soon,” the ING economist said. “The ECB will probably not start raising interest rates until it is convinced that the recovery is sustainable.”

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Posted in Categories: Economy, Eurozone, Forex, Releases.

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