The first quarter results show banks again tightening their credit standards for loans or credit lines to enterprises, albeit by less than the banks expected in the last round. At 3 percent, the net balance was 6 percentage points short of their forecast and also 1 percentage point below the fourth quarter outturn. For households, standards eased for mortgage lending for the first time in three years (minus 6 percent after 2 percent) but tightened further for consumer credit (9 percent after 11 percent). Some additional modest tightening is seen for firms this quarter (6 percent) but no change is anticipated for either home loans or consumer credit (0 percent).

The survey also found firms' net demand decline substantially last quarter (minus 28 percent after minus 1 percent). This was mainly driven by higher interest rates and lower fixed investment and is expected to be followed by a smaller net decrease in demand this quarter. Elsewhere, net demand for housing loans (minus 3 percent) saw a small decrease while net demand for consumer credit was broadly stable (1 percent).

In sum, the latest results show that the effects of earlier monetary tightening are still feeding through into the more interest rate sensitive sectors of the economy. Indeed, the drop in loan demand is significant and will have the Governing Council doves worried about policy being kept too restrictive for too long. Today's report will strengthen market expectations for a June ease.

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.