ECB Injected 529 billion Euro in 3-Year LTRO

The results of The European Central Bank’s second long-term liquidity program has been announced today.

The ECB injected 529.5 billion euro into the eurozone financial system, as 800 European banks took advantage of the ECB’s three-year loan programme, which offers lenders as low as 1 percent interest rate.

The median forecast for the second longer-term refinancing operation (LTRO) was at the level of 500 billion, which appeared to be just a bit below the actual amount.

During first ECB’s three-year loan programme in December 523 banks borrowed 489 billion euro.

Many expect the second LTRO to be used to refinance debt, buy sovereign bonds and act as a liquidity buffer. However, the results of the program will depend on how much of this money is going to be passed on to the real economy in the form of loans to companies.

While the aim of the loans is to relieve liquidity strains in the region and get credit flowing to companies and households, the program bares a risk of being misused if banks hoard the cash.

Some economists have warned that eurozone banks risk becoming addicted to the cheap funding from the ECB and that it may not be long before the ECB has to commit to a third LTRO.

The euro weakened compared to the dollar on the news, dropping 0.4 per cent.

Source: FT

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.