Policy rates went up; credit got easier anyway

Victoria Shinder08 October 2026, 07:162 min read

Three documents published on 7 October, from three very different central banks, describe the same pattern: policy rates are higher, and credit is still getting easier.

The Federal Reserve. The minutes of the 15–16 September meeting record a unanimous hike to 3.75–4%. In the same pages, many participants said financial conditions still appeared supportive of growth: equity prices up substantially, corporate spreads narrow, robust loan and bond issuance, easier bank lending standards. Several said they saw policy as not restrictive or only mildly restrictive, and most expect another hike by year end.

The ECB. Its SESFOD survey covers June to August — the quarter in which the ECB raised rates by 25 basis points. Dealers nonetheless eased credit terms for all counterparty types, for the fourth consecutive quarter. The price of financing went up for top clients, as a higher policy rate would predict; but haircuts fell, initial margins on several OTC derivatives fell, and the amount and maturity of funding on offer rose for some collateral.

The Central Bank of Kenya. Holding its rate at 8.75%, the MPC reported private-sector credit growth of 10.6% in September, up from minus 2.9% in January 2025, with lending rates down to 14.4% from 17.2% in late 2024. There, with the rate on hold, the recovery in credit is welcome news — but the statement too ends on second-round effects from oil.

Why the pattern matters. Central banks raise rates to slow demand partly through credit. When the price of money rises but the terms on which it is lent keep loosening, the transmission is weaker than the headline rate suggests. That is exactly the argument behind the Fed participants who called policy only mildly restrictive and raised their estimates of the neutral rate.

What it does not show. None of these documents measures how much tighter credit would have been without the hikes, and the ECB survey is qualitative — net percentages of 26 banks, not volumes. The reading is about direction, not size: in the week the minutes came out, the evidence from both sides of the Atlantic is that rates have moved further than credit conditions have.