At its monetary policy meeting in December 2024, the Governing Council of the ECB

In addition, the Governing Council adjusted its communication, removing earlier references to the level and duration of restriction. The Governing Council is determined to ensure that inflation stabilises sustainably at its 2 % medium-term target. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. The Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

In January, the Governing Council lowered the key ECB

Short-term money market rates moved completely in line with the reductions in key interest rates. Following the cut in key interest rates in January, the euro short-term rate (€STR

Market participants are expecting to see three further rate cuts before the end of 2025. The median response from the Eurosystem’s Survey of Monetary Analysts conducted ahead of the January meeting indicated that participants are expecting to see three further rate cuts of 25 basis points each up until June. Following the June meeting, no further interest rate steps are currently expected for the remainder of the year. And the money market, too, is currently pricing in three further interest rate cuts this year, including an interest rate step of 25 basis points for the March meeting.

Monetary policy securities holdings shrank further as of mid-November. This was again because assets held under the asset purchase programme (APP

Excess liquidity declined further. At last count, it stood at €2,877 billion. The contraction was due, in part, to the final repayments under the third series of targeted longer-term refinancing operations (TLTRO

The broad monetary aggregate M3

Money holdings of private non-banks grew markedly again in the final quarter of 2024. Highly liquid overnight deposits in particular saw the largest inflows (see Table 2.3). This could be related to the elevated economic uncertainty and high saving rate of households. Unlike in the previous quarters, households added significantly to their overnight deposits whilst at the same time scaling back their short-term time deposits as yield spreads narrowed – for the first time since the second quarter of 2022. In addition, they boosted their holdings of short-term savings deposits, especially with French banks, which paid interest on tax-privileged savings books at the end of the year. Consistent with brisker lending to non-financial corporations in the fourth quarter, this sector likewise added significantly to its holdings of overnight deposits. In addition to inflows from sales and borrowing, non-financial corporations also moved funds out of short-term time deposits into overnight money or sight deposits, thus leaving the reporting quarter with what was, on balance, the largest build-up of overnight deposits by non-financial corporations since the first quarter of 2021.

MFI

On the counterpart side, loans to domestic non-banks were once again the main factor driving monetary growth, for the first time in just over two years. Contributions to this rise in lending came mainly from loans to financial and non-financial corporations and from loans to households in the euro area. Lending to general government saw barely any growth on balance in the fourth quarter of 2024. This was due to the gradual reduction of government bonds that the Eurosystem had purchased up to mid-2022 under its monetary policy asset purchase programmes.

Loans to non-financial corporations bounced back significantly in the fourth quarter, but whether this recovery is sustainable remains to be seen. Net inflows into loans were markedly higher in the fourth quarter of 2024 than in the previous quarters (see Chart 2.6) for two reasons. First, the declining lending rates buoyed demand for loans. Second, enterprises also appear to have replaced bonds with bank loans. This unexpectedly strong increase in loans is unlikely to continue in the coming quarters because the economy is recovering at only a slow pace. An analysis at the country level reveals that significant impetus for loan growth continued to come only from banks from France and some smaller countries. Banks in Germany recorded only slim growth, primarily from cross-border lending (see the chapter entitled “German banks’ deposit and lending business with domestic customers”). Banks in Italy and Spain saw their net lending decline slightly. 

On aggregate, growth in corporate loans is likely to recover only slowly. Amid subdued growth prospects, structural challenges and geopolitical uncertainty, corporate investment activity in the euro area has been weak thus far. In addition, the ECB

According to the BLS

In the face of cyclical risks, the BLS

Loans to households saw the moderate upswing continue. The fourth quarter of 2024 saw the pace of lending increase again over the previous quarters (see Chart 2.6); in spite of this, net lending growth remained well below the level before monetary policy tightening began in mid-2022. The recovery was driven by increasing demand for loans for house purchase. The upturn in this loan category should be considered in the context of lending rates that have been in decline since the start of the year as well as households’ real income growth. Responses by the banks surveyed in the BLS

The banks surveyed in the BLS

Consumer credit grew again significantly in the fourth quarter of 2024. Similarly, other lending to households, which includes loans to sole proprietors, for example, also expanded again slightly in net terms, the first time it has done so since 2022. The banks surveyed in the BLS

Alongside bank lending, inflows from abroad contributed to money growth as well. Though noticeably smaller than in the previous quarters, these inflows were nonetheless large overall. This was mainly due to a further increase in the euro area’s current account surplus with the rest of the world. The most recent balance of payments statistics data suggest, furthermore, that portfolio investment with non-residents was also continuing to make a positive contribution, even though non-resident demand for investment in the euro area declined on balance.

The German banking sector’s deposit business with domestic non-banks grew robustly in the final quarter of 2024. This was mainly because households and non-financial corporations added substantially to their holdings of overnight deposits, much like in the euro area as a whole. They probably did this in response to the heightened economic uncertainty and the subdued consumer and business climate (see the GfK

German banks’ loan and securitised lending business with domestic enterprises and households grew noticeably again in the final quarter of 2024. Banks increased their loans again slightly and also raised their holdings of securities issued by domestic private issuers – in particular bonds of other financial institutions – by more than they had done in previous quarters. Lending to domestic general government, meanwhile, was significantly weaker than in the previous quarters. While German banks increased their loans to general government, they also reduced their holdings of German government securities, leaving lending to general government only slightly positive overall (see Table 2.4). 

Banks’ loan business with households continued its slight recovery observed since the summer. This was mainly due to loans for house purchase, which once again saw stronger demand quarter on quarter. These benefited from a further decline in lending rates and brisk demand for housing. Responses from the banks surveyed in the BLS

At the same time, the banks in Germany further tightened their credit standards for housing loans. The BLS

Alongside loans for house purchase, consumer credit to households also recorded moderate growth again. The uptick in demand for consumer credit and other lending to households was mainly attributable to spending on durable consumer goods, the BLS

Banks’ loan business with domestic non-financial corporations, meanwhile, remained anaemic on balance in the fourth quarter of 2024. Unlike in the euro area, banks’ lending business in Germany with non-financial corporations was still showing no signs of recovery (see Chart 2.10). While banks in Germany significantly expanded their long-term loans with maturities of over five years, which are usually in demand amongst enterprises for investment purposes, banks’ medium-term and short-term loans to non-financial corporations shrank by almost just as much on balance. 

Subdued demand overall for loans from non-financial corporations reflects the difficult economic environment and uncertain economic outlook. The BLS

According to BLS

The banks attributed the recent rounds of tightening of their credit standards to their lower risk tolerance and the increased credit risk. This assessment related not only to the subdued general economic situation and outlook but also to industry-specific and firm-specific factors. The banks reported, furthermore, that regulatory and supervisory requirements, particularly those surrounding the implementation of the Basel III reform package, also played a role in the tightening of credit standards over the past 12 months. Moreover, the banks reported that the ratio of non-performing loans, including further indicators of credit quality, had had a restrictive effect on the credit standards for loans to enterprises in the second half of 2024. 

For the first quarter of 2025, the BLS

European Central Bank (2025), The euro area bank lending survey, Fourth quarter of 2024, January 2025.