ECB: Eurozone banks tighten lending

Eurozone banks tightened lending as consumers revised their inflation expectations higher amid the fallout from the Iran war, the European Central Bank (ECB) said in a survey published on Tuesday, illustrating the early impact of rising energy prices, Reuters reported, according to Agerpres.

The ECB's survey of eurozone consumer expectations showed that inflation expectations for the coming year rose to 4% in March, from 2.5% the previous month, and those for the next three years rose to 3% from 2.5%, both above the ECB's average medium-term target of 2%.

The survey also showed banks tightening their lending criteria in the first quarter of this year, with the trend expected to continue this quarter.

Analysts expect the ECB to keep rates unchanged this week, with officials in Frankfurt awaiting more data on the length and extent of the energy shock before making a decision, with hikes expected from June.

The ECB's Governing Council will likely take into account that inflation expectations for the next five years have risen to just 2.4%, from 2.3%. And banks are already coming to the ECB's aid, making loans harder to obtain, especially for companies, which face a more severe tightening of access to loans from the third quarter of 2023.

"Perceived risks to the economic outlook and banks' lower risk tolerance are the main factors that led to the tightening of criteria, with institutions indicating that geopolitical and energy developments have increased pressures,” the ECB study said.

"Some banks reported further tightening related to exposure to energy companies and the Middle East,” the Frankfurt-based institution said.

Studies last week showed that the global economy, and especially the euro zone, is facing significant effects from the energy shock, with factories being hit by rising production costs.