Monetary Policy: The Central Role of Credit Access

The effectiveness of monetary policy depends less on the level of rates than on actual access to credit.

The level of rates alone does not explain the real impact of monetary policy. What often matters more is the effective availability of credit. This is traced in detail in our study on the transmission of monetary policy to the real economy. When access tightens, transmission intensifies, even without an immediate change in rates. This distinction is frequently overlooked in monetary debates.

The objection comes up regularly: “rates have fallen, why isn’t credit picking up?” The question reveals a confusion between the price of credit and its availability. An attractive rate is of no use if the bank turns down the file. The real bottleneck of monetary transmission often sits in lending criteria, not in funding cost.

The price of credit is not the availability of credit

When a central bank lowers its policy rate, it cuts commercial banks’ refinancing costs. But between that refinancing cost and the credit actually distributed, several filters intervene: prudential ratios (CET1, leverage ratio), institutions’ risk appetite, internal lending criteria and regulatory standards (HCSF in France, for example).

ECB data (Bank Lending Survey of January 2026) show that in the fourth quarter of 2025 the weighted net share of euro area banks tightening their corporate lending criteria rose back to +4%, from -1% the previous quarter, although the deposit rate had been cut from 4.00% to 2.00% between June 2024 and June 2025. This tightening, driven mainly by risk perception (firm- and industry-specific situation, general economic activity) with capital position playing almost no role, partly neutralised the monetary easing. It continued in 2026 (+7% in Q1, +10% in Q2), while the ECB raised its deposit rate to 2.25% in June and 2.50% in September 2026. Rate policy was sending an opening signal; bank balance sheets were sending a caution signal. Directly related: Our read of the way rate cycles shape corporate profitability.

The structural functioning of the banking channel in transmission explains this gap. Banks are not automatons that mechanically pass through rate variations. They assess risk, manage their balance sheet and arbitrage between profitability and exposure, decisions that may run counter to the central bank’s intended direction.

When credit disappears without rates moving

The most insidious phenomenon is quantitative credit rationing. In this case, posted rates remain stable but banks reduce the amounts granted, lengthen processing times, demand additional collateral or simply turn down files deemed too risky. This rationing is invisible in rate statistics but very real in borrowers’ experience.

France went through this between 2023 and 2024. The average mortgage rate had indeed risen, but the determining factor was the collapse in volumes granted: new housing loans excluding renegotiations fell from a monthly average of EUR 19.6 billion in 2022 to EUR 9.9 billion in 2024, down 49%, with a trough at EUR 6.5 billion in February 2024 (ECB MFI interest rate statistics). It was not the price of credit that froze the housing market, it was its rarefaction, amplified by HCSF rules capping the debt-service ratio at 35% and maximum loan duration at 25 years.

Watch the tap, not just the meter

To assess the actual effectiveness of monetary policy, credit volume indicators are at least as important as rate indicators. Monthly mortgage origination, net corporate loan flows, loan rejection rates and lending condition surveys provide a more complete picture than tracking policy rates alone.

The selective distribution of credit across borrower profiles reinforces the need to look beyond averages. A falling average rate can coexist with deteriorating credit access for the most fragile profiles: small businesses, first-time homebuyers, sectors deemed risky.

The focus on interest rates as the sole indicator of monetary policy obscures the mechanism that often determines its real effectiveness: actual credit access. The concrete diffusion of monetary impulses through the economic fabric depends on banks’ willingness and ability to lend, not only on the price at which they refinance themselves. The instruments deployed by monetary authorities (targeted refinancing operations, temporary prudential easing) are designed precisely to act on this quantitative dimension when the rate channel alone is not enough.

Last updated — 8 October 2026