European Central Bank Governing Council member Ewald Nowotny said he doesn’t think officials will have to offer more three-year cash to euro-area banks after the second batch of loans next week.
“We never pre-commit, but I do believe that the general feeling in the ECB council is that we’ve set clear measures and will wait to see the effect of these measures,” Nowotny said at an event in Vienna today. “I personally don’t see any further need for action” after the ECB’s second tranche of three-year loans, which will be allotted on Feb. 29. Still, “we are able to provide as much liquidity as is demanded,” he said.
Banks may next week tap the ECB for almost as much three-year cash as they did in December in an operation that could prolong a rally in bond markets. The European Commission said yesterday that the region’s economy will experience a “mild recession” this year, driven by the shrinking economies of countries buffeted by the sovereign debt crisis.
While there are “some green shoots” in the euro-area economy, “even a mild recession is a recession,” Nowotny said. “That is a very unsatisfactory development, even if we see more positive developments in some countries.”
Financial institutions will ask the ECB for 470 billion euros ($629 billion) in three-year funds, the median of 28 estimates in a Bloomberg survey shows. That compares with the record 489 billion euro take-up at the first tender on Dec. 21. No further three-year operations are currently scheduled beyond next week.
Italian and Spanish bonds have risen since the ECB’s first three-year loan, suggesting banks are investing at least some of the money in higher yielding assets.
Nowotny declined to comment on the outlook for the ECB’s main refinancing rate, saying “we never pre-commit.”
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