The April results show that banks tightened their credit standards for loans or credit lines to enterprises significantly further in the first quarter. In fact, the pace of net tightening (27 percent) matched the record high seen in the previous period. Credit standards were also tightened again for both lending for house purchase (19 percent after 21 percent) and for consumer credit (10 percent after 17 percent) although, in both instances, the degree of tightening was less marked than in the fourth quarter.

The survey also found a marked contraction in loan demand. For enterprises (minus 38 percent after minus 12 percent) the decline was especially apparent, as was the case for house purchase (minus 72 percent after minus 74 percent). Consumer credit demand (minus 19 percent after minus 30 percent) similarly continued to weaken but the pace of fall here was a good deal less than seen previously.

In sum, the latest results show that higher interest rates are bearing down on the more interest rate sensitive sectors of the economy and this should be reflected in sluggish economic growth over coming months. In turn, this should help the ECB in its bid to get inflation back to target.

The European Central Bank's quarterly lending survey of around one hundred and forty banks aims to enhance the Eurosystem's knowledge of financing conditions in the Eurozone and so help the central bank to assess monetary and economic developments as an input into monetary policy decisions. The headline number refers to the net percentage of banks that have tightened their credit standards on lending to enterprises. It is designed to complement existing statistics on retail bank interest rates and credit with information on supply and demand conditions in the euro area credit markets and the lending policies of euro area banks. The survey addresses issues such as credit standards for approving loans as well as credit terms and conditions applied to enterprises and households. It also asks for an assessment of the conditions affecting credit demand.

Particularly in the wake of the Great Recession and the Covid-19 crisis, changes in financial market conditions can have a major say in central bank policy, and hence, the level of asset prices. The main focus is the net percentage of reporting banks indicating tightening credit standards or positive loan demand with regards to enterprises, house purchase and consumer credit. An unwanted tightening of standards or undesired fall in lending could prompt a softer monetary stance from the ECB, potentially entailing lower official short-term interest rates and possible efforts to reduce the cost of longer-term loans.