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

As announced in March 2024, changes to the operational framework for implementing monetary policy entered into force in September. Effective 18 September, the spread between the interest rate on the main refinancing operations and the deposit facility rate was set at 15 basis points. The spread between the rate on the marginal lending facility and the rate on the main refinancing operations remained unchanged at 25 basis points. Following this change, the interest rate on the main refinancing operations stood at 3.65 % and the interest rate on the marginal lending facility stood at 3.90 %.

In October, the Governing Council lowered the key ECB

At both meetings, the Governing Council reiterated that it was not pre-committing to a particular rate path. It is determined to ensure that inflation returns to its 2 % medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.

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

Market participants are expecting to see an additional interest rate step in December and further rate cuts next year. In the Eurosystem’s Survey of Monetary Analysts conducted ahead of the October meeting, all respondents stated that they were expecting a further rate cut of 25 basis points in December. For 2025, the median response indicated that three further interest rate cuts totalling 75 basis points are expected. At present, money market forward rates are likewise fully pricing in a rate cut of 25 basis points at the December meeting in addition to four further interest rate cuts by the middle of next year.

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

Excess liquidity declined further. At last count, it stood at €2,957 billion. The contraction was due, in part, to final maturities and voluntary repayments under the third series of targeted longer-term refinancing operations (TLTRO

The increase in monetary growth continued in the third quarter. The annual growth rate of the broad monetary aggregate M3

Growth in money holdings was broadly spread across all components of M3

Household M3

Alongside short-term forms of investment, longer-term bank bonds were also an attractive purchase option for investors. While the yields on longer-term bank bonds fell again in the third quarter of 2024, they were still higher than the remuneration on forms of investment within M3

On the counterpart side, strong inflows from abroad were the main factor driving monetary growth. The recent uptick in the MFI

In addition, banks also added further to their loans and securitised lending to non-banks, which likewise buoyed monetary growth. The upward tendency in lending to households became more entrenched. Lending to households gained significant traction during the summer months after exhibiting noticeable weakness in the previous quarters (see Chart 2.6). This upswing was fuelled by a distinct recovery in loans for house purchase. Demand for housing loans picked up in particular due to the moderate decline in lending rates since the beginning of the year as well as robust household income growth. This observation is confirmed by data provided by the banks surveyed in the BLS

The banks surveyed in the BLS

Consumer credit also rose significantly on balance in the third quarter. Meanwhile, other lending to households was reduced further, but to a lesser extent. Looking at both loan categories together, the banks surveyed in the BLS

A noticeable recovery in loans to non-financial corporations is not yet evident. Banks expanded their loans to enterprises moderately on balance in the third quarter of 2024 (see Chart 2.6). However, net inflows were weaker overall than in the previous quarter. Unlike in the previous quarter, short-term loans with maturities of up to one year were reduced on balance; volatility in this loan category has been strikingly high of late. Long-term loans with maturities of over five years, which are usually more closely linked to firms’ investment activity, picked up again somewhat after a weaker previous quarter. The expansion fell short of the inflows in the winter half-year, however. Among the four major euro area Member States, banks in Germany, Italy and Spain continued to provide little impetus; only banks in France recorded significantly positive net lending.

So far, non-financial corporations have been able to finance much of their investment using internal funds. With lending rates still relatively high, the economic outlook uncertain and political uncertainty elevated, investment activity remained sluggish in the euro area, dragging on corporate demand for loans as well. On aggregate, the existing sources of internal funding were largely sufficient to finance the weak investment activity. Hence, in the Survey on the Access to Finance of Enterprises (SAFE

For the first time in two years, the BLS

BLS

The German banking sector’s deposit business with domestic non-banks saw moderate growth in the third quarter of 2024. This was mainly because investors added further to their holdings of short-term time deposits. Interest rates on short-term time deposits declined in Germany and in the euro area as key interest rates were reduced. However, their remuneration remained attractive compared with other forms of deposit (see Chart 2.7).

Growth in deposit business was driven primarily by net inflows of household deposits. Alongside households, financial and non-financial corporations contributed to deposit growth as well. Whilst enterprises mainly accumulated overnight deposits, households had a preference for short-term time deposits, which are somewhat less liquid, but offered higher yields. At the same time, they further reduced their holdings of short-term savings deposits, which offered comparatively unattractive yields. After households had significantly decreased their holdings of overnight deposits in the previous quarters, this trend now appears to have come to a standstill, bolstered by the lower opportunity costs of holding money.

German banks’ lending business with domestic customers grew noticeably in the third quarter of 2024. For one thing, banks in Germany further expanded their lending to domestic general government, albeit to a somewhat lesser extent than in the previous quarter. An even more important factor driving lending business, though, was lending to the domestic private sector, much like in the euro area. Loans to financial corporations, in particular, rose again. In a departure from the previous quarter, however, loans to households also provided a slight boost in the third quarter of 2024 (see Table 2.4).

The granting of loans to domestic households for house purchase remained at the level from the previous quarter. Unlike in the euro area, banks’ lending business with households in Germany has so far only shown a weak upward tendency. This is mainly because the granting of loans for house purchase in the third quarter once again fell short of the stronger first quarter (see Chart 2.8). Whilst interest rates on loans for house purchase fell slightly in Germany as well in the reporting quarter, they continue to be higher than in the other major euro area Member States. Moreover, according to the BLS

New business volumes and BLS

In addition to loans for house purchase, consumer credit also recorded slight growth. Consistent with this, the BLS

Lending business with the non-financial corporate sector saw only minimal growth. The changes were small across all maturities (see Chart 2.8). There are no signs at present of an upward tendency in either loans with long maturities, which are usually used to finance investment, or in loans to enterprises overall. On the one hand, the current economic situation, alongside the persistently high financing costs, is continuing to depress the propensity to invest and thus the demand for loans among German enterprises. On the other hand, business surveys like SAFE

According to the banks surveyed in the BLS

Credit standards and terms and conditions for loans to enterprises were not tightened further. In the third quarter of 2024, the banks surveyed in the BLS

The funding situation has improved somewhat for German banks. Given the conditions in financial markets, German banks reported that their funding situation had improved somewhat compared with the previous quarter.

The ECB

The impact of the third series of targeted longer-term refinancing operations (TLTRO