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 ECBâ€™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 ECBâ€™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.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.