ECB to Take Anti Lending Freeze Measure Next Week

The market expects the ECB to tackle the more immediate lending freeze and leave the major changes needed to the midterm. It remains to be seen which are the options the ECB presents to increase liquidity in the short term as almost all the analysts think an interest rate reduction is off the table for now.

A quarter that began with a rate hike and banks’ reliance on ECB liquidity support near its lowest since mid-2009 looks set to end with calls for a steep rate cut and the likelihood that long-term emergency bank loans will be reintroduced.

The deterioration in banks’ willingness to lend to each other stems from the spread of the crisis to Italy and the growing prospect of institutions needing to take large losses on Greek debt holdings.

Without addressing those problems, any ECB action at next Thursday’s meeting was likely to prevent a freeze in interbank lending without stimulating a return to a better-functioning money market, analysts said.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza