A recent survey conducted by the European Central Bank (ECB) revealed a tightening of credit standards by a majority of eurozone banks in the third quarter of 2023. The survey, carried out from September 15 to October 2, involved 157 banks, with 56% reporting stricter conditions. This finding is indicative of a significant weakening in lending dynamics, which has been ongoing since earlier this year.
The tightening of credit standards has affected all loan categories due to widening loan margins, leading to decreased demand for credit from firms and households. This shift is largely attributable to substantial net tightening measures implemented since the start of the year.
In response to these developments, the ECB has taken several steps to tackle inflation. Since July 2022, the central bank has made ten consecutive interest rate hikes and has begun reducing its balance sheet portfolio. These measures have resulted in a deterioration in market financing conditions and liquidity positions for eurozone banks over the past six months.
Looking ahead into the fourth quarter, eurozone banks project further net tightening of credit standards on loans to firms. However, they expect the standards for housing loans to remain stable as part of their inflation-taming measures.
Meanwhile, on a global scale, the U.S. dollar index, which measures the U.S. dollar against six major peers, rose by 0.69 percent to 106.2679 due to an increased S&P Global (NYSE:SPGI) manufacturing PMI and a near three-year low in the eurozone's October PMI.
In other related developments, the Philippine Bureau of the Treasury reported a September budget deficit of 250.9 billion pesos ($4.42 billion), a 39.6% surge from 2022, pushing the year-to-date deficit to 983.5 billion pesos ($17.3 billion), marking a decrease of 2.89 percent compared with the previous year.
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