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

Author

Listed:
  • Matteo Santi

    (Bank of Italy)

  • Sefano Schiaffi

    (Bank of Italy)

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.

Suggested Citation

  • Matteo Santi & Sefano Schiaffi, 2025. "The bank-based transmission of the 2024-25 monetary policy easing in the euro area," Questioni di Economia e Finanza (Occasional Papers) 964, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_964_25
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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