ECB: Could Tighter Financial Conditions and Lending Standards Replace Policy Rate Hikes?

Goldman Sachs analyzes how tightening financial conditions and lending standards are acting as a substitute for ECB rate hikes. They estimate these exogenous factors are equivalent to a 20bp rate hike, supporting a cautious path of 25bp hikes in June and September.

Key Takeaways

• 1.Transmission of tighter monetary policy is already occurring through financial conditions and bank lending standards, despite the ECB not yet raising rates.
• 2.Exogenous tightening in lending standards and financial conditions is estimated to be equivalent to approximately 20bp of policy rate hikes.
• 3.A cautious approach to rate hikes is supported by the data, with the authors forecasting 25bp hikes in both June and September.

Table of Contents

• ECB—Could Tighter Financial Conditions and Lending Standards Replace Policy Rate Hikes?
• The European Economics Team
• Disclosure Appendix

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