Low take-up for cheap bank credit raises pressure on ECB

Thu Sep 18, 2014 1:22pm EDT
 
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By Eva Taylor and John O'Donnell

FRANKFURT (Reuters) - The European Central Bank saw far less demand than expected on Thursday for its new four-year loans to banks, raising doubts about a stimulus package it hopes will stave off deflation and revive the euro zone economy.

The launch of the scheme, a central plank of the ECB's efforts to coax reluctant banks to lend, saw the euro zone's central bank hand out 82.6 billion euros of 400 billion euros ($515.16 billion) on offer to 255 banks.

That was well below the 133 billion euros forecast by a Reuters poll of 20 money market traders. Banks will get a second chance on Dec. 11 to apply for the cash, granted at ultra-low interest rates on condition they lend it on to businesses, when the poll predicted take-up of 200 billion euros.

Berenberg Bank chief economist Holger Schmieding called the low demand "a disappointing result for the ECB" that cast doubt on the bank's hopes of injecting 400 billion euros into the economy through this scheme.

"Simply offering more liquidity at more generous terms to banks awash in cash will not make a huge difference to the outlook for growth and inflation," he said.

But ECB Executive Board member Peter Praet warned against reading too much into the first result, stressing that it was part of a broader policy package that "will have a sizeable impact" on the ECB's balance sheet.

He added that expectations for the first round had always been lower than for the second offering in December.

"Markets have understood that the June and September measures should be seen as a combination aiming at addressing credit impairment," Praet told Reuters in an interview, adding the measures could only be assessed once fully implemented.   Continued...