The rapid pace of lending to the private sector in the euro zone showed little change in July but money supply growth eased, according to new data today that suggests higher interest rates are starting to bite.
Analysts said the moderation is unlikely to dampen the hawkish tone expected from the European Central Bank's Governing Council when it meets on Thursday, or deter it from raising interest rates at least once more this year.
In its latest report, the ECB said private loan growth advanced at an 11.1 per cent seasonally adjusted annual rate in July, up from an 11 per cent in June.
Over the past three months, private loan growth has averaged 11.2 per cent. Consumer credit growth increased to 8.6 per cent in July, from 8.3 per cent in June.
But the closely watched lending for house purchases slowed to 11.4 per cent from 11.8 percent over the same period, the ECB said.
M3 money supply - a mix of cash, short-term bank deposits and money market instruments - slowed to a 7.8 per cent annual growth rate, its slowest rate since January's 7.6 per cent growth rate, down from 8.5 per cent in June, the ECB said.
Analysts said the retreat in money supply growth reflects banks offering higher interest rates to attract savers into deposits with longer maturities.
This allows banks to match their liabilities when lending growth remains robust.
Accordingly, they saw no reason why the slowdown in money supply growth, which leaves it still well above the ECB's 4.5 per cent reference level, would prompt ECB President Jean-Claude Trichet to signal inflationary risks from money and credit are abating.