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Credit conditions outlook: tighter for longer as central banks juggle financial risk, inflation
Headline inflation has started to fall due to lower energy prices, but persistently high core inflation is keeping the pressure on central banks to increase interest rates to return inflation to target.
The banking crisis in the US highlighted new systemic risks that have spilled over to Europe. EU banking sector risks appear well controlled at this stage, but there are already signs that the repercussions from the collapse of Silicon Valley Bank and Credit Suisse will make banks more cautious to extend credit and make it harder for borrowers to tap capital markets, especially in interest rate sensitive sectors such as real estate.
This trend is likely to persist. Financing conditions have not tightened sufficiently to bring inflation pressures down and European economies have regained some momentum this year helped by a strong services sector.