Weak loans, money supply data turn up pressure on ECB

FRANKFURT, May 28 (AFP): Slowing money supply growth and declining loans to the private sector will add to pressure on the European Central Bank to ease policy next month, analysts said on Wednesday.

In its latest monthly monetary data, the ECB calculated that the euro area money supply grew by a meagre 0.8 per cent in April, down from 1.0 per cent in March.

This could prove a headache for the ECB, which regards its M3 money supply as a barometer for future inflation, since area-wide inflation is currently much lower than the ECB would wish.

At the same time, loans to the private sector in the euro area-a gauge of economic health-are still contracting, albeit at a slower rate than before, the data showed.

Meanwhile, some countries under pressure from low growth, high unemployment and voter dissatisfaction as shown by swings to far right and left parties in European elections on Sunday, are hoping that the ECB will ease policy. This is particularly the view of the beleaguered French Socialist government.

They see this as a way of helping cash to circulate, to boost activity and reduce unemployment, and to lower the euro.