The European Central Bank injects €442 billion into banking system
The European Central Bank (ECB) allotted €442 billion to banks for 12 months, the biggest amount it has ever given in a single auction. The amount was more than most economists had expected.
The decision is the latest in ECB's efforts to maintain proper functioning of the financial market amid global crisis. Loans would be given at a record low fixed rate of 1%, which is the benchmark interest rate for Eurozone. Allotment to 1,121 banks, who took part in the auction will begin tomorrow. The maturity date is July 1, 2010.
The new allotment is higher than the previous record allotment of EUR 348.6 billion in December 2007, when the financial crisis intensified.
In May, the ECB had announced that it would double the maximum maturity on its loans to a year from 6 months previously. Today's is the first of the three auctions planned for this year, with the other two are due on September 29 and December 15.
The first-ever 12-month allocation resulted in a fall in demand for three-month funds. The ECB allocated only EUR6.4 billion in three-month funds, which will replace the EUR28.8 billion expiring this week.
The financial crisis has hit Europe's banking system severely. The domino effect was seen in all sectors of the economy. Troubles in credit availability squeezed businesses and this led to reductions is staff, production and investment.
To ease tensions in the financial system and to ensure smooth flow of funds, the ECB has cut its key interest rate to a record low of 1%. Since October last year, the bank had reduced the key interest rate by a total of 325 basis points. In addition, from next month onwards, the ECB will start buying EUR 60 billion in covered bonds.
The new liquidity injection by the ECB came on the heels of calls for mopping up excess liquidity when the appropriate time comes. Tuesday, ECB Executive Board member Christian Noyer said the bank must be ready to absorb excess liquidity as soon as necessary. Another ECB rate-setter, Germany's Axel Weber said there is no need of additional stimulus now. But, the bank's President Jean-Claude Trichet warned that there are still risks of a sudden emergence of unexpected financial turbulence.
Secretary-General of the Paris-based Organization for Economic Co-operation and Development, Angel Gurria said Wednesday that it is critical to consider exit strategies now in order to prevent new risks in the years ahead.
The think-tank finds no clear visible signs of recovery in the euro area. Euro area GDP is expected to contract 4.8% this year and to show nil growth in 2010. The previous projections were for a 4.1% fall in 2009 and a 0.3% fall in 2010. As increasing unemployment impair consumer spending, the eventual recovery is likely to be slow.
[227] 25.06.2009 Source: RTTNews
Popular News
Best Banks in Central and Eastern Europe for 2009 - 14.05.2010 The following are the «Best Banks in Central and Eastern Europe for 2009» according to rankings published by Global Finance magazine: Source: Global Finance
Big banks slashed small business credit lines - 13.05.2010 The biggest Wall Street banks slashed their small business loan portfolios by 9% between 2008 and 2009, more than double the rate at which they cut their overall lending, according to a government report released Thursday. Source: CNN Money
European Union agrees on €750bn bailout fund for eurozone - 10.05.2010 Crisis-hit Europe on Monday announced a monster rescue package running to 750 billion euros between euro countries and the IMF, sending the euro surging in Asian trade. Leaders hope an unprecedented international intervention, worth just shy of one trillion dollars, will represent a game-changing European financial war chest, which will also be backed by European Central Bank action to nudge debt and currency markets. Source: Financial News
Debt crisis may hurt banks outside Greece - 06.05.2010 Credit ratings agency Moody's Investor Service said the banking systems in Portugal, Italy, Spain, Ireland and Britain could all be hurt by a widening debt crisis. Source: Associated Press
Bank of Russia cuts discount rate - a historic low for Russia - 04.05.2010 The Bank of Russia slashed its discount rate by another 0.25 percent from April 30. Starting tomorrow, the rate will be 8 percent per annum - a historic low for Russia. Source: RBC
