ECB’s cheap loans will return this year, Credit Agricole says


ECB HQ

PARIS: The European Central Bank (ECB) (pic) will backtrack on plans to wean banks off cheap loans, according to Credit Agricole SA.

The ECB may announce targeted long-term refinancing operations, known as TLTROs, as soon as July, said Louis Harreau, rates strategist at the Paris-based lender. That would reinstate the policy tool less than a year after it was concluded.

First introduced a decade ago to helps banks weather the region’s debt crisis, the operations have been integral in keeping financial conditions loose. In a bid to unwind its super-easy policy in the face of record high inflation, the ECB conducted its last TLTRO offering in December.

But Harreau expects the bank will have to start pumping out cheap liquidity again in order to support financial institutions now grappling with the prospect of higher borrowing costs. Money markets are wagering the ECB will raise the deposit rate to 0% by the end of next year, from minus 0.5% currently.

“In the post-Eurozone sovereign debt crisis, we doubt that the ECB will be able to end its TLTRO,” The injections total �2.2 trillion (US$2.5 trillion or RM10.49 trillion), about half of the total spare cash floating around in the banking system.

The most recent TLTRO iteration offered a sweetener rate if certain lending criteria were met, that ends in June, raising fears of a drop in excess liquidity should banks decide to subsequently return the cash. — Bloomberg

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