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The Wilder View

Euro area periphery countries seeing improved monetary policy transmission mechanism

The ECB released its August report of euro area MFI interest rates (link .pdf). According to mortgage and non-financial corporate lending rates, the transmission channel of monetary policy to the periphery economies improved through August. See this post for links and associated detail on the ‘hampered’ transmission channel.

Since the  outset of the ECB’s most recent rate-cutting cycle -  here I’m referring to recent cuts that occurred after the ECB mistakenly hiked its policy rate in July 2011 – mortgage and non-financial corporate lending rates declined across the euro area except in Italy.

Change in mortgage rates

Change in corporate lending rates

Italy is the one country with a clearly ‘hampered’ transmission channel, as mortgage rates and non-financial corporate lending rates rose 0.51% and 0.36%, respectively, despite the ECB cutting its policy rate. Portugal and Spain did see lending rates fall, but to varying degrees.

Since the month of July – July 26 was the date that Draghi promised markets that “the ECB is ready to do whatever it takes to preserve the euro” – rates in Spain and Portugal declined in line with the core. In the case of non-financial corporate lending rates, the average periphery rate declined  0.46% more than the average core rate.

Change in mortgage rates since June 2012:

Average Core *: -0.13%
Average Periphery *: -0.16%

Change in non-financial corporate lending rates June 2012:

Average Core: -0.11%
Average Periphery: -0.57%

Recently, it’s evident that financial conditions via mortgage and non-financial corporate lending rates are improving in the periphery.

Mortgage rates trending down

Non-financial corporate lending rates trending down

On balance, the trend is positive. Notably, too, the Spanish corporate lending rate remained roughly unchanged in the month of August. This is a positive development, given the 1.4% drop in those rates in July.

Rebecca Wilder

* Core = Austria, Belgium, Germany, Finland, France, Netherlands
* Periphery = Greece, Ireland, Italy, Spain

2 Responses to “Euro area periphery countries seeing improved monetary policy transmission mechanism”

klhoughtonOctober 5th, 2012 at 1:16 pm

Does that convergence stop when the Germans start saying "no, we will never agree to that"? (May need a few more weeks of data to see a trend, but I know which way I would bet.)

EssaysWritersJune 10th, 2013 at 6:47 pm

I believe it always comes down to Germany. Every other single EU country may "adjust" but unless Germany does as well the crisis will never be over. There are always two sides to an equation (and an acc. entity) and we can clearly see the Germans have not done their part during the adjustment process.They should spend more,save less,be tolerant for some inflation and realize that they will share the burden either way. Thank you very much for the article.

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