Monetary policy and business lending: Impact on pricing
Fecha: septiembre 2022
Antonio Mota, Diego Aires, Fernando Rojas and Francisco del Olmo
When Mario Draghi promised to do “whatever it takes” on July 23rd, 2012, he managed to stabilise the euro and avert the sovereign debt crisis. Those words also cemented the unconventional monetary policy measures first rolled out in response to the financial crisis of 2008. Later, the health crisis induced by the COVID-19 pandemic ushered in new challenges for monetary policy design which translated into new EU recovery programmes. The purpose of this paper is to analyse the measures implemented since the financial crisis of 2008 and the extent to which they have affected the real economy, with a focus on how they have affected business loan price formation. Our analysis shows that both the ECB´s corporate bond buyback program and its liquidity scheme have played a particularly important role in reducing the cost of borrowing for SMEs since 2014. The reversal of those unconventional monetary policies will drive interest rates higher, as we are already seeing. That phenomenon could trigger an increase in corporate bankruptcies, which would increase the business community’s marginal cost of borrowing even further. The thorny issue for the central banks is whether the existence of inflation per se has more adverse consequences for the economy than the path of rate tightening they establish.