ECB moves closer to dovish shift

Bank expected to cut forecasts at its next meeting in March

The European Central Bank took a step closer to injecting fresh stimulus into the weakening euro-area economy as one of its top policymakers said discussions are under way on offering banks new longterm loans.

The comments by Benoit Coeure, the ECB Executive Board member in charge of markets, provided the strongest signal yet that euro-area policymakers are considering another round of funding. He also echoed ECB President Mario Draghi that there must be a monetary policy case for such action.

Central banks around the

world are following the Federal Reserve in reining in plans to tighten monetary policy.

The ECB itself has already changed its language to warn of downside risks to the outlook, while India’s central bank unexpectedly cut interest rates last week and easing inflation bolstered bets that more reductions could be on the cards.

Speculation on new loans

With the euro-area outlook deteriorating, the ECB is expected to cut its economic growth forecasts at its next meeting in March. That gathering is also at the centre of speculation about new loans, known as TLTROS.

“I can see that there is a big discussion in the market of adding a new, as we call it, TLTRO, targeted long-term refinancing operation,” Coeure said. “It is possible. We are discussing it, but we want to be sure that it serves a monetary purpose.”

Investors responded to the comments by sending the euro lower, briefly touching its weakest level since November and trading at $1.1268 (Dh4.1381) in Frankfurt. Banks have suggested they would like another round of the cheap funding, and stock prices increased. The Euro Stoxx Banks index rose on Friday, taking its gain for the week to more than 4 per cent. Federal Reserve policymakers in January backed away from raising interest rates.