ECB of­fi­cials dodge ques­tions on new loans

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE - Alessan­dro Spe­ciale, Piotr Skolimowski and Mar­cus Ben­sas­son

EURO­PEAN Cen­tral Bank pol­i­cy­maker Olli Rehn has sidestepped a ques­tion on whether it is con­sid­er­ing an­other round of cheap longterm loans to banks as a po­ten­tial re­sponse to eco­nomic tur­moil.

“If needed we will then con­sider the whole tool­box we have at our dis­posal,” Rehn said at a panel in Athens along­side four other euro-area cen­tral gov­er­nors. “Next time we will as­sess in more de­tail and broadly the eco­nomic out­look.”

His com­ments came af­ter Mar­ket News re­ported a plan for new round of loans to banks could be dis­cussed as soon as the ECB’S De­cem­ber 13 meet­ing. Only a se­ri­ous eco­nomic shock could prompt the move, the re­port said, cit­ing peo­ple fa­mil­iar with the dis­cus­sion. Euro-area growth slowed to its weak­est pace in four years in the third quar­ter, fan­ning spec­u­la­tion the ECB may be forced to re­think plans to start re­mov­ing the stim­u­lus. A num­ber of ECB of­fi­cials dis­missed those con­cerns ear­lier this week, say­ing re­cent dis­ap­point­ing in­di­ca­tors don’t fun­da­men­tally change their out­look on in­fla­tion and growth. If the re­gion’s eco­nomic prospects were to worsen sig­nif­i­cantly, the re­port said a new round of Tar­geted Longer-term Re­fi­nanc­ing Op­er­a­tions would be the first line of de­fence.

Bloomberg re­ported last month that some banks have been in con­tact with the ECB to dis­cuss the risk of let­ting the four- year loans, known as TLTROS, ex­pire with­out af­ford­able al­ter­na­tives be­ing in place. One con­cern is that lenders could be forced to re­fi­nance just as mar­ket rates rise, spurred by tighter US mon­e­tary pol­icy and ten­sions such as Brexit and Ital­ian pol­i­tics. Ital­ian two-year notes rose af­ter the Mar­ket News re­port.

Italy took out about a third of the funds pro­vided by the ECB un­der the first two TLTRO pro­grams be­tween 2014 and 2017, and banks in the coun­try could face higher re­fi­nanc­ing costs next year amid fi­nan­cial mar­ket tur­moil. ECB Pres­i­dent Mario Draghi said in his Oc­to­ber 25 press con­fer­ence that two Gov­ern­ing Coun­cil mem­bers had raised the is­sue of TLTROS, “but not in any de­tail”. Bank of France Gover­nor Fran­cois Villeroy de Gal­hau said in a speech on that same day that the loans need to be con­sid­ered.

Rehn said the Gov­ern­ing Coun­cil will have a new set of fore­casts in De­cem­ber to help them de­cide what to do next. The process of pol­icy nor­mal­i­sa­tion was data-de­pen­dent and the stim­u­lus was not go­ing away as the ECB plans to rein­vest pro­ceeds from ma­tur­ing bonds, he added. Speak­ing at the same panel, Bel­gian cen­tral banker Jan Smets said the ECB was key in sta­bil­is­ing the euro-area econ­omy. To Greek Gover­nor Yan­nis Stournaras, the ECB and its non­stan­dard mea­sures helped avoid the breakup of the euro area: “With­out ECB in­ter­ven­tion, I do not know if we’d be here to­day,” he said. Bloomberg

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