The bank-based transmission of the 2024-25 monetary policy easing in the euro area

Matteo Santi () and Sefano Schiaffi ()
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Matteo Santi: Bank of Italy
Sefano Schiaffi: Bank of Italy

No 964, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper assesses the intensity with which the monetary policy easing that began in June 2024 was transmitted to banks' funding costs and lending rates in the euro area up to May 2025. Compared with the 2008-09 easing cycle, the pass-through to banks' funding costs was somewhat weaker, mainly due to a dampened transmission to overnight deposit rates. Conversely, the pass-through to lending rates for firms was slightly stronger, reflecting banks' relatively muted risk perception compared with the 2008-09 easing cycle. An analysis based on a Vector Error Correction Model on a broader sample shows that large variations in risk perception may drive a wedge between reference rates and bank lending rates. However, in the easing cycle that started in June 2024 the dynamics of banks' risk perception were relatively subdued and, as a consequence, the transmission of reference rates to lending rates was strong.

Keywords: monetary policy; bank lending channel; interest rate channel (search for similar items in EconPapers)
JEL-codes: C32 E32 E37 E51 E52 (search for similar items in EconPapers)
Date: 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_964_25

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