FRANKFURT (MNI) – The European Central Bank’s three-year
refinancing operations, along with other liquidity-easing measures
announced at the end of 2011, will help eliminate funding obstacles and
support bank lending to the real economy, the ECB said in its Monthly
Bulletin on Thursday.

In the first three-year LTRO, executed just before Christmas, banks
helped themselves to a bounty of E489.2 billion, the largest-ever ECB
refinancing operation, at a low rate of 1%.

The amount of liquidity loaned out can be seen “as a reflection of
[banks'] refinancing needs over the coming three years,” the ECB said.
It said the fact that the operation was “attractively priced” could be
another reason for the big take-up.

“Overall, the analysis suggests that funding considerations played
a major role in the bidding behaviour of banks in this first three-year
LTRO, supporting the Governing Council’s view that the announced
measures will help to remove impediments to access to finance in the
economy, stemming notably from spillovers from the sovereign debt crisis
to banks’ funding markets,” the bulletin read.

In a separate box on “money and uncertainty,” the ECB said that in
the current environment, liquidity injections may have a limited impact
on money growth in the Eurozone.

“In the current period, with uncertainty related mainly to
sovereign debt problems in some euro area countries, in conjunction with
pressures on the banking sector, the potential for a protracted period
of portfolio shifts into money may be more limited, as MFIs are
attempting to deleverage and non-resident investors may prefer to
withdraw from euro area assets, contributing to downward pressure on
money growth,” the report said.

It also said that in the current environment, drawing conclusions
about future price trends from underlying monetary developments is less
dependable, thus suggesting that the ECB may be relying less on its
“second pillar” of M3 money growth in policy deliberations.

“A heightened degree of uncertainty can have a notable impact on
portfolio choices, also affecting broader monetary aggregates.
Consequently, the sources of euro area monetary growth need to be
analysed carefully before firm conclusions can be drawn as regards the
signal derived from underlying monetary developments in respect of price
developments over the medium term, the ECB said.

— Frankfurt Bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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