ECB QE will boost credit growth, but not soon

Subject

Is quantitative easing helping credit growth?

Significance

Economists are questioning whether the ECB's sovereign quantitative easing (QE) programme is boosting private credit growth, one of the key objectives of QE. At his June press conference, ECB President Mario Draghi said that "the dynamics of loans to non-financial corporations remain subdued". This followed his comments in May that the private sector is still "hesitant to take on economic risk".

Impacts

• Regardless of encouraging signals from the credit front, both real borrowing costs and private debt ratios remain high.
• The QE programme's goal is encouraging banks to make new loans to corporates and households.
• QE also aims to trigger portfolio rebalancing from bonds to equities.
• If non-financial companies do not issue more equities or bonds, higher bank demand will fuel an asset price bubble.