The ECB released interest rate statistics for loans and deposits during July yesterday. Since its main refinancing rate was lowered by 25bp  at the start of July it is very interesting to look into the transmission mechanism in Germany and the periphery countries of the ECB interest rate policy. Using data available on interest rates on new loans to non-financial corporations are presented. First, loans of less than 1 million € and maturities up to 1 year:


Although loans with maturities less than 1 year do not provide much information on credit for investment, they are the ones to provide capital for daily operations and production and respond more quickly to the central bank interest rate policy. Loans less than 1 million € should reflect credit to SMEs. It is clear that both Greece and Portugal (which actually have a very large share of SMEs and self-employment) are on their own category, with more than double the interest rates of German corporations (a spread of more than 380bp) while the rest of the periphery corporations also face large spreads, raging from 125-150bp for Ireland and Italy and reaching 200bp for Spain.

The picture is quite the same for loans of more than 1 million € as well:


Spreads are a bit lower in this case, although considerable. More than 325bp in the case of Greece/Portugal and 50-75bp for Spain, Italy and Ireland. The fact that Irish interest rates follow Spanish and Italian ones is obviously quite positive. Still, especially in the case of loans to SMEs, the spreads actually reflect a monetary tightening stance than monetary easing. ECB monetary policy should focus on providing mechanisms to lower these spreads, most probably by making it easier and cheaper to obtain direct ECB financing using such loans as collateral.