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LONDON (MNI) - The European Central Bank may announce details of fresh
cheap funding for banks in June, with tighter terms than in previous rounds, as
most officials interpret recent stronger economic data as signs that a soft
patch in growth is being left behind, ECB officials told MNI.
The third round of targeted longer-term refinancing operations could be
offered at rates up to 10 basis points higher than the ECB's main refinancing
rate, currently at 0%, one official told MNI. Criteria tying the interest rate
to whether the two-year funds are used for lending to the real economy will also
probably be stricter than was the case with past TLTROs, added the source, who
expected an announcement in June.
Another official said that the corridor within which the ECB was likely to
set the TLTRO rate was small, and that it would be logical to provide terms in
June for the loans, which become available in September.
"The only reason not to make an announcement in June would be to create an
impression that it's not connected to financial stability and bank funding
needs, but from a content point of view it should be June," the second source
Currently outstanding TLTROs begin to come due around mid-year, prompting
concern that some banks, particularly in Italy, might struggle to raise
sufficient money from market sources to replace them.
Better-than-expected first quarter eurozone growth has bolstered the case
for tighter TLTRO terms than was the case with TLTRO II, a third official said.
These would probably be announced in June, the source said.
"Overall, it's looking like we're back to a new relatively low normal. In
any case, potential growth in Europe is pretty low so if we're back to potential
next year, Draghi's forecast of a 'soft patch' will be borne out."
A fourth source, however, disagreed about the significance of the economic
uptick for TLTRO conditions.
"The degree to which the new TLTROs terms could be adjusted as a result of
a (better) economic outlook exclusively depend on whether this recent
improvement will have consolidated by the time the TLTROs are launched," the
source said. "One or two bright moments cannot suffice nor are reliable to be
used as benchmark in prompting tighter conditions for TLTROs in September."
The strengthening of data has probably not been sufficient to prompt any
forecast increases in the ECB's next round of macroeconomic projections in June,
one of the sources said.
However, the source added: "It seems the soft-patch theorists will
dominate. [Recent data] has turned out in the way they have been explaining it
for the last two quarters. It has finally turned out better than expected."
"The baseline scenario is that apart from the refinement of the details
around TLTRO we won't get any major new announcements before the end of Draghi's
term in office," the source said.
An ECB official declined to comment.
--MNI London Bureau; +44 203 865 3829; email: email@example.com