FRANKFURT (MNI) – The European Central Bank drained E194.1986
billion from the banking system on Tuesday in a seven-day
liquidity-absorbing operation intended to sterilize the ECB’s purchases
of Eurozone government bonds.
The amount fell short of the E203.5 billion targeted, which is the
cumulative total spent by the ECB in bond buys since the start of the
program in May last year minus any bonds that have matured in the
meantime.
One likely reason explaining the shortfall – the first since May –
is that banks prefer to remain very liquid and park funds using the
central bank’s overnight deposit facilities. This highlights the
fragility of confidence and concerns that a step-up in the crisis might
require the precautionary funds parked at the ECB to be utilized.
Eighty-five banks placed bids totalling E194.1986 billion, the ECB
said. The weighted average allotment rate for the operation was 0.62%,
the lowest rate was 0.5%, and the highest rate accepted, or the marginal
rate, was 1.25%, the ECB reported.
The drained liquidity takes the form of fixed-term deposits. These
can be used as collateral in the Eurosystem’s refinancing operations.
The central bank will hold another liquidity-absorbing operation next
week to reabsorb this week’s term deposits when they expire, as well as
any additional amounts that might be injected into the financial system
in the event of new bond purchases.
— Frankfurt bureau: +49 69 720 142; email:frankfurt@marketnews.com —
[TOPICS: M$$CR$,M$X$$$,M$$EC$]
