Euro-zone Monetary Indicators released on Thursday showed that bank lending in the Euro area was not much different compared to the earlier months: growth was positive but still weak. Data showed that euro-zone broad money (M3) growth picked-up from 4.7% y/y in December to 5.0% in January, a little stronger than the consensus forecast. Euro-zone broad money growth (M3) showed improvement despite a slowdown in narrow money (M1) growth, from 10.8% to 10.5%. However, broad money growth is still slow by past standards and suggests that the ECB might struggle to hit its inflation target.

Bank lending growth remained slow and added to the other evidence that the euro-zone's economic recovery is slowing. Details showed that bank lending to the private sector increased 0.6 % y/y in January when using data that is adjusted for loan sales and securitisation. Although the annual growth is slightly up from previous months there is no dramatic shift in the monthly flows. Thus, the overall outlook about weak credit developments has remained unchanged.

The ECB will monitor developments in bank lending closely prior to the next monetary policy meeting on 10 March. The most recent bank lending survey, was conducted in December, right after the ECB's decision to decrease deposit rate by 10 bps to -0.30 %. The take-off from the new credit numbers and the bank lending survey is that no harm has been done by negative interest rates so far.

That said, ECB's latest Bank Lending Survey showed that the demand for, and availability of, credit has risen, which is an encouraging sign. However, there is a risk that banks could raise the interest rates on lendings in an attempt to boost their profitability. While loose monetary policy has supported credit growth, positive news is still scarce and on average credit growth is still weak. This defends ECB's action for further easing and even more negative interest rates. 

"We now expect a more substantial easing package to be announced, including an increase in the monthly pace of asset purchases in addition to a lowering in the depo rate. We continue to expect a cut in the deposit rate by 10bp to -0.4%." said Goldman Sachs in a research note.

EUR/USD was trading around 1.1020, while EUR/GBP was at 0.7874 at 1100 GMT.