ECB chief economist dashes hopes of imminent cash injection for banks

FRANKFURT: The European Central Bank’s (ECB) chief economist dashed hopes that it was about to launch a new cash injection to alleviate the pressure on struggling lenders in countries such as Italy.

In an interview with German daily Handelsblatt, chief economist Peter Praet said it was too early to decide on a new round of multi-year loans to banks, which are covered by existing funding until the middle of next year.

His remarks appeared to rule out that a new Targeted Longer-Term Refinancing Operation (TLTRO) would start imminently.

They also suggested the ECB was sticking to its plans for reducing its monetary stimulus for the broader euro zone economy in the coming months, as minutes of its latest meeting had also shown earlier on Thursday, despite flagging growth in the bloc.

“It is premature to decide on a new TLTRO now,” Praet told Handelsblatt.

Sources told Reuters earlier this month that a decision on the new TLTRO was not to be expected at the ECB’s next policy meeting on Dec 13.

TLTROs – essentially cheap multi-year loans to banks – have been one of the tools through which the ECB has revived price growth in the euro zone in recent years by stimulating lending.

Euro zone banks have to repay around 720 billion euro (US$820 billion) of TLTRO loans in 2020-21, with over a third of that falling upon Italian banks already facing choppy markets due to worries about their government’s economic policy.

With the latest TLTRO starting to mature in June 2020, banks will need to start looking for alternative sources of long-term cash towards the middle of next year to meet regulatory demands.

“This will start to have effects on the net stable funding ratio as of mid-2019. The banks are aware of this and they have been preparing themselves for it,” Praet said.

Investors have been questioning the ECB’s resolve to follow through on plans to stop its bond purchases at the end of the year and raise interest rates sometime after next summer, given an economic slowdown.

Praet, a policy dove, stuck by the ECB’s assessment that the economic outlook for the euro zone remained balanced despite growing ‘downside risks’, such as protectionism, vulnerable emerging economies and financial market gyrations. — Reuters