The European Central Bank’s second round of long-term loans came in at the low end of analysts’ estimates, bolstering the case for the institution to start large-scale quantitative easing.
The Frankfurt-based ECB said it allotted 130 billion euros ($161 billion) to euro-area banks at a fixed interest rate of 0.15 percent in its targeted longer-term refinancing operation. Estimates in a Bloomberg News survey ranged from 90 billion euros to 250 billion euros, with a median of 148 billion euros.
The TLTROs play a key role in President Mario Draghi’s drive to revive the euro-area economy by injecting as much as 1 trillion euros in liquidity. Today’s offer will fuel the debate among policy makers over whether current stimulus is enough, or if they need to start buying assets such as government bonds.
The operation “is an important test of the capacity of the current measures to get the intended 1 trillion euro balance-sheet increase,” Giuseppe Maraffino, an analyst at Barclays Plc in London, said before the announcement. “We believe that the December TLTRO, coupled with the other measures already announced by the ECB, will still not be enough.”
The program got off to a slow start in September when the first round raised 82.6 billion euros, less than all estimates in a separate Bloomberg News survey. The two operations combined have lent 212 billion euros, compared with the ECB’s estimate of a total eligibility of 400 billion euros.
More Control
Six other TLTROs will be conducted through 2016, with the size of loans linked to banks’ new lending to companies and households. All the loans mature in September 2018.
The less banks borrow, the more policy makers must find other ways to boost the balance sheet. Draghi said last week that the ECB is “getting more control” by buying assets directly. It started purchases of covered bonds in October and asset-backed securities last month.
Even so, the balance sheet has barely budged as new liquidity injections are countered by repayments of crisis-era loans issued in 2011 and 2012. Those mature by February, with banks still on the hook for 257 billion euros.
Inflation (ECCPEST) in the 18-nation euro area was 0.3 percent in November, matching a five-year low. A plunge in oil prices after the Organization of Petroleum Exporting Countries decided not to ease a global glut of crude is putting further downward pressure on the rate, which ECB Chief Economist Peter Praet said this week could turn negative in coming months.
Draghi said on Dec. 4 that the Governing Council considered all assets but gold for the potential expansion of its purchase programs. A QE package will be prepared for discussion at the ECB’s Jan. 22 monetary-policy meeting, according to euro-area officials familiar with the matter.
To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net
To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.net Paul Gordon, Angela Cullen
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