The data published by the European Central Bank (ECB) on January 3 for the month of November leave no doubt about the favourable financing conditions currently in place. Total financing to the private sector continued to grow at a rate above the nominal increase in the European economy, with a particularly notable rise in bank lending. Alongside an ample supply of financing, interest rates are at historic lows, with the central bank very active in ensuring that the low cost of financing across the yield curve is passed on to households and businesses.
The ultimate objective of monetary policy is to keep inflation at certain levels, which explains the monetary authority’s monitoring of liquidity. However, despite all the expansionary monetary measures taken to date and the fact that growth in the liquidity aggregate (M3) is one percentage point above the desirable medium-term level of 4.5%, price increases remain below the target reference. The ECB argues for the need to remain persistent on the chosen path, although it also acknowledges that persisting with a monetary policy as expansionary as the current one may make it less effective and generate negative effects and distortions that must be assessed. Hence the need for monetary policy to give way to other measures, such as supply-side structural reforms and fiscal policy, to reactivate the economy.
The ECB has also just published the evolution of household and corporate deposits, with no surprises: in November they maintained the strong increase recorded in recent months—above 6% year-on-year in the case of households, and more than 7% in the case of companies. Even governments increased their deposits in private banks, with annual growth of 5.6%. The return earned on deposits is low, although what is truly important is that banks are generally acting as a buffer for their customers against the penalty the ECB applies to banks’ deposits at the issuing institution. In an environment of negative interest rates, officially justified by the need to channel savings towards consumption, it is striking how private agents ultimately decide to increase their savings and favour precisely the most trusted and secure assets, such as deposits. The clearest alternative to these is government debt, which is recording negative yields in a virtually widespread manner.
By definition, savings are the portion of income that economic agents set aside for future use, in view of the possibility of expected or unexpected expenses, situations of need, or a potential investment. However, in an environment like the current one, the difficulty of managing savings appropriately is evident. Economic uncertainty is compounded by distortions in the pricing of financial assets and vulnerabilities in financial markets, which the ECB acknowledges as a consequence of its exceptional monetary policy. Financial education is a fundamental tool for making sound decisions, and it is advisable to complement it with the best possible professional advice. Nevertheless, a clear strategy to normalise monetary policy is becoming increasingly important, one that brings greater economic and financial certainty to economic agents.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
