Noyer says low ECB rates not easing bank funding costs

Mon Jul 16, 2012 5:09pm EDT
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FRANKFURT (Reuters) - Euro zone banks are not fully benefiting from the European Central Bank's record low interest rates as funding costs in the market remain high, ECB policymaker Christian Noyer told German financial daily Handelsblatt.

In an unprecedented move, the ECB earlier this month cut the euro zone's key interest rate to a record low of 0.75 percent and lowered the rate it pays banks for overnight deposits to zero to help revive lending and growth.

But Noyer was quoted as saying on Monday that such changes had little effect on banks' funding costs.

"What we see is that we have a clear problem of transmission of monetary policy. In the eyes of the markets, the interest rate charged to individual banks depends on the funding costs of the sovereign and not on the rates set by the central bank."

"This means that the monetary policy transmission does not work. We tried to counter this phenomenon which is unacceptable for a central bank in a monetary union," Noyer said.

To ease banks' funding strains, the ECB has pumped more than 1 trillion euros into the banking system in the form of 3-year loans since December, but Noyer said the ECB could not keep such support measures in place indefinitely.

"For the future we cannot indefinitely rely on a system where the central bank is massively funding the banking system and massively receiving liquidity on the other side of its balance sheet," he said.

"It cannot be such an intermediary in the long run."

Asked whether there would be another 3-year tender, he said: "For the time being we don't see the need, but we will see. I do not exclude it, but at the moment it does not seem to be needed."   Continued...

Bank of France Governor Christian Noyer addresses the International Economic Forum of the Americas in Montreal, Quebec June 11, 2012. REUTERS/Christinne Muschi