Lower interest rate on ECB TLTRO won't boost demand: traders

Published Mon, Feb 2, 2015 · 01:48 PM

[LONDON] Demand for the European Central Bank's next offering of cheap four-year loans for banks will not be boosted by cutting the cost of borrowing to match the ECB's main interest rate of 0.05 per cent, a Reuters poll found on Monday.

As part of its plan to prime the eurozone economy with cash, the ECB said in January that banks would be charged the refinancing rate for its targeted long-term loans, or TLTROs, from the March offering onwards.

But 16 of 20 eurozone money market traders polled said the lower cost would not draw more demand.

"Even from the get-go, regardless of what the rate is, the whole package is not attractive for banks and they'll be reluctant to take up the loans," said a trader.

Take-up at the previous two TLTRO offerings, in September and December last year, fell far short of the ECB's maximum.

A large majority of traders also said political developments in the eurozone after anti-bailout party Syriza won Greek elections just over a week ago had not had any material impact on money markets.

The new leftist government has promised to abandon austerity imposed under Greece's 240 billion euro bailout and seek to restructure its massive debts.

But German Chancellor Angela Merkel ruled out a debt writedown for Greece on Saturday and an ECB policymaker threatened to cut off funding to Greek banks if Athens does not agree to renew the aid package.

Next week, banks will pay back 10.0 billion euros of the second long-term crisis loans (LTROs) taken in February 2012, according to the poll. They will repay 10.8 billion euros on Wednesday.

The first tranche of loans matured late last month, with any outstanding balances rolled over to the weekly and three-month ECB operations.

At the regular weekly operation, the poll showed the ECB will lend banks 145.0 billion euros, with 163.8 billion euros maturing this week.


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