The demand of European financial institutions for another round of long-term ECB loans fell below expectations, increasing the pressure on the central bank quickly start buying government bonds to stimulate the economy.
According to data released on Thursday by the European Central Bank, banks took advantage of the offer made by the monetary authority of long-term credit at a fixed rate of only 0.15% to borrow about 129,800 million euros. This number is below what was the expectation of the markets. Analysts surveyed by Bloomberg before the auction pointed, on average, to a value of around 148 billion euros.
This was the second round of loans, and, the first, the search had been below expectations. In total, this time, the ECB could lend 212 000 million of a total of 400 billion were eligible.
These long-term loans from the ECB to banks are one way so far applied by entity led by Mario Draghi to try to stimulate the European economy and thus combat the risk of deflation. With these loans and also with the purchase of mortgage bonds to banks and securitized loans, the central bank tries that banks will eventually lend more money to businesses and families, thereby increasing investment and consumption. For the impact to be desired, the ECB aims to inject more one billion euros through these measures.
The problem is that the relatively low demand of banks for these loans makes it difficult to achieve this objective. An analyst at ABN Amro Bank in statements made on Thursday to Bloomberg , stated that “it now seems almost impossible that the ECB can even come close to an expansion of its balance sheet of one billion euros, the measures currently in force. “
What this means is that the ECB may be forced very soon to implement stimulus measures that are not dependent on demand from banks for financing. The most obvious possibility is the purchase by the central bank of government bonds, similar to what was done by the Federal Reserve in the United States, the Bank of England and the Bank of Japan.
At the meeting last 4 December, the ECB has wished to stress the message you want to get to the same stimuli EUR billion. Instead of saying that this was the amount expected with the implementation of the measures, the statement read by Mario Draghi said it was even the “intent” of the bank achieve this value.
However, this simple change language was cause for division within the ECB. Draghi assumed it was a non-consensual decision on the Board of Governors. Several newspapers reported that the representative of the German central bank again be among the votes against and two German publications ensured that within the executive board that has six elements not linked to national central banks (including Draghi and Constantius), there were three votes against.
Still, despite this division, in the markets we expect more and more of the inevitability of the ECB even initiate a purchase of government bonds. “The ECB will have to extend its purchase of assets and government bonds will have to be part of that mix,” said the same analyst.
In late November, Vitor Constancio said that a decision the central bank in relation to new unconventional measures would be taken during the first quarter of next year. Until then, the evolution of economic indicators in the euro area will give an idea of the urgency with which the ECB will have to act.
The inflation data continue to show a rate in the euro area dangerously close to zero and away the medium-term objective of the central bank, which is a variation of annual rates below but close to 2%.
In Portugal, announced on Thursday the INE, the annual inflation rate remained November to zero, while the average price change for the last twelve months was unchanged at -0.2%.
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