(Reuters) - Demand for the European Central Bank's newly announced long-term loans will be strong, traders polled by Reuters said, but they will do little to boost interbank lending.
ECB President Mario Draghi last week announced a slew of measures to combat low inflation - including cutting interest rates to record lows and a new series of long-term loans, known as Targeted Long-Term Refinancing Operations (TLTROs).
All but two of the 21 traders polled expect take-up to be more than half the roughly 400 billion euros the ECB is offering in the hope of encouraging more lending. But over two-thirds of the traders said those hopes would be dashed.
The latest long-term loans come with the condition that banks use the funds to lend to the bloc's non-financial private sector. If that condition is not met banks will need to return those funds in two years instead of four. "It is a good opportunity for banks to take cheap cash despite it being targeted.
Because even if banks do not meet the condition, they will have two years to return it - which is a long time to make a quick buck," said a trader at a large dealer.
In a signal of the likely strong demand for the cheap cash, 13 traders said they expect banks to take up all or most of the loans and six said they expected around half to be taken up.The remaining two traders said not much cash would be bid for.
"Ongoing constraints on banks' balance sheets will remain a drag on net lending but, on balance, we believe there is scope for TLTROs to attract decent demand (north of 300 billion euros, initially) and to gain traction over time," wrote Frederik Ducrozet, an economist at CA-CIB, in a note.
A majority of traders said the funding would help keep money market rates down and boost liquidity, despite saying in previous Reuters polls additional liquidity was not required.
In a sign that the ECB's latest measures are at least lowering money market rates, EONIA rates - the amount banks in the euro zone charge one another to borrow overnight - hit an all-time low of just above zero at 0.053 percent.
The ECB has also promised full allotment at fixed rates of its refinancing operations through to the end of 2016.
reuters.com
ECB President Mario Draghi last week announced a slew of measures to combat low inflation - including cutting interest rates to record lows and a new series of long-term loans, known as Targeted Long-Term Refinancing Operations (TLTROs).
All but two of the 21 traders polled expect take-up to be more than half the roughly 400 billion euros the ECB is offering in the hope of encouraging more lending. But over two-thirds of the traders said those hopes would be dashed.
The latest long-term loans come with the condition that banks use the funds to lend to the bloc's non-financial private sector. If that condition is not met banks will need to return those funds in two years instead of four. "It is a good opportunity for banks to take cheap cash despite it being targeted.
Because even if banks do not meet the condition, they will have two years to return it - which is a long time to make a quick buck," said a trader at a large dealer.
In a signal of the likely strong demand for the cheap cash, 13 traders said they expect banks to take up all or most of the loans and six said they expected around half to be taken up.The remaining two traders said not much cash would be bid for.
"Ongoing constraints on banks' balance sheets will remain a drag on net lending but, on balance, we believe there is scope for TLTROs to attract decent demand (north of 300 billion euros, initially) and to gain traction over time," wrote Frederik Ducrozet, an economist at CA-CIB, in a note.
A majority of traders said the funding would help keep money market rates down and boost liquidity, despite saying in previous Reuters polls additional liquidity was not required.
In a sign that the ECB's latest measures are at least lowering money market rates, EONIA rates - the amount banks in the euro zone charge one another to borrow overnight - hit an all-time low of just above zero at 0.053 percent.
The ECB has also promised full allotment at fixed rates of its refinancing operations through to the end of 2016.
reuters.com
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