Eurozone Business Lending Drops 50% Amid ECB Rate Hikes

Bank lending to eurozone businesses fell to 11 billion euros in August, representing a 50% decrease from 22 billion euros in July and a further drop from 27 billion euros in June. The European Central Bank attributed the decline to rising borrowing costs following two interest rate hikes, which moved the rate to 2.25% in June and 2.5% in September.

These monetary policy measures were implemented to counter inflation driven by higher energy prices resulting from the U.S.-Iran war. While lending to households rose to 19 billion euros in August, the sharp contraction in business loans—specifically those with maturities exceeding five years—indicates that tightening policy is hindering business investment.

The European Central Bank currently views the 2.5% rate as the upper limit of a neutral stance. However, investors anticipate the bank will shift toward restrictive territory by the end of the year.