Lending and consumer data cements case for ECB rate cuts

FRANKFURT (Reuters) - Euro zone lending continued to stagnate in March and consumers trimmed their inflation expectations as record-high borrowing costs kept putting the brakes on the euro zone's economy, European Central Bank (ECB) reports showed on Friday.

The data was likely to cement the ECB's plan to start cutting interest rates in June after seeing inflation fall to just above its 2% goal and economic growth come to a standstill.

"Today's data is in line with a start to cautious rate cuts," Bert Colijn, senior economist for the euro zone at ING, said.

Bank credit figures illustrated how high rates were likely discouraging borrowers as well as lenders - part of the price to pay for the ECB's fight against high inflation.

Bank loans to companies increased by just 0.4% in March, compared with 0.3% a month earlier. Growth in lending to households, which had been more resilient until last summer, set a new decade-low at 0.2%, from 0.3% in February.

In a sign that the ECB's bitter medicine was working, an ECB survey showed consumers in March cut their inflation expectations for the following 12 months to their lowest since December 2021 at 3.0%.

Inflation expectations for three years ahead held steady for a fourth consecutive month at 2.5%, the ECB said in its monthly poll of around 19,000 consumers.

"From now on, we must weigh the risk of monetary policy becoming too tight," ECB policymaker Fabio Panetta said late on Thursday. "A tight monetary stance could...increase the risk of a protracted period of economic weakness."

On the upside, the amount of money circulating in the euro zone - a measure that often works as a leading indicator - continued to rebound and grew by 0.9%, the fastest pace since last May.

This chimed with some recent data pointing to tentative signs of recovery, or at least a stabilisation, in the economy.

Inflation has fallen quickly over the past year but the outlook remains clouded by rising energy costs, stubbornly high services inflation and continued geopolitical tensions that threaten to disrupt trade.

(Reporting By Francesco Canepa and Balazs Koranyi; Editing by Alex Richardson)