Euro-Zone Banks Return 296 Billion in Cheap ECB Funding
Comment of the Day

November 18 2022

Commentary by Eoin Treacy

Euro-Zone Banks Return 296 Billion in Cheap ECB Funding

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Banks will return €296.3 billion ($308 billion) of cheap loans to the European Central Bank after their terms were toughened to help the battle against record inflation. 

The repayment represents just under 15% of the total outstanding amount of so-called TLTRO loans, which were used during the pandemic to keep credit flowing to households and businesses. The median forecast in a Bloomberg poll this month was for €600 billion to be given back. The projections ranged from €200 billion to €1.5 trillion.

German two-year bonds erased losses and outperformed equivalent interest-rate swaps after the data. The spread between yields and swap rates widened two basis points to around 84 basis points.

Eoin Treacy's view

Christine Lagarde was very clear in stating today that the ECB is recommitting to their sole official mandate of getting inflation back to target and avoiding “secondary effects”. The threat of inflation becoming entrenched is non-trivial because the solutions to the region’s energy crisis all imply paying more than before the crisis. That means killing demand is the only way to get inflation under control and it is not yet clear the ECB has the stomach for that kind of action.

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