November 23, 2018 / 4:21 AM / 6 months ago

ECB chief economist dashes hopes of imminent cash injection for banks

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

European Central Bank (ECB) executive board member Peter Praet speaks during an interview with Reuters in Frankfurt, Germany, March 14, 2018. Picture taken March 14, 2018. REUTERS/Ralph Orlowski/Files

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 ($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,” Praet said. “The banks are aware of this and they have been preparing themselves for it.”


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.

And he even struck an optimistic note over Brexit, saying that an agreement between Britain and the European Union could improve sentiment.

“The downside risks have increased, but at this stage we still think that the picture remains broadly balanced,” Praet said.

Minutes of the ECB’s last policy meeting also showed rate setters were in agreement over reaffirming a sanguine view of the economy and their intention to reduce monetary stimulus.

“It was important to emphasise that the incoming information, while somewhat weaker than expected, remained overall consistent with an ongoing broad-based expansion of the euro area economy and gradually rising inflation,” the ECB said in the minutes of the meeting.

The central bank kept rates at record lows at the Oct. 24-25 meeting and repeated its intention to stop adding to its 2.6 trillion euros ($3 trillion) of bonds at the end of the year in light of higher inflation.

($1 = 0.8767 euros)

Reporting By Francesco Canepa, editing by Gareth Jones, Larry King and David Stamp

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