Euro zone banks tightened access to credit in the second quarter over geopolitical instability fears, and they expect further tightening in the current quarter, the European Central Bank’s quarterly Bank Lending Survey showed on Tuesday.

Geopolitical Instability Fears

The survey, a key input in policy deliberations, also indicates that while business loan demand increased, lenders rejected a larger share of applications, and credit standards tightened most in sectors such as the car industry and energy-intensive manufacturing, the ECB said.

The ECB is almost certain to keep interest rates unchanged later this week, partly because economic growth is weak, but a hike in September remains most ECB watchers’ base case as the energy surge induced by the Iran war has lifted inflation to around 3%, far above the ECB’s 2% target.

For housing loans, demand already fell sharply in the second quarter and banks project a further decline, the ECB added.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.