By Daniel Hunter
800 banks across the European Union have been given a financial boost to the tune of €530 billion (£448 million) from the European Central Bank (ECB).
This is the second time the ECB has offered such three-year loans and comes after €489 billion was lent in December.
"This morning’s €530B long term repurchase offers (LTRO) result was broadly in line with consensus and takes ECB lending at 1.0% up to €1trn, which goes a long way to explain how the euro has managed to bounce back in the past three months," Richard Driver of Caxton FX said.
"On the one hand, the large take-up suggests that liquidity will continue to improve and that eurozone institutions will be more robust moving forward. However, some might take it as a clear indication of ongoing instability.
"The first LTRO was a major success and Draghi is right when he says it has averted a credit crunch. Nonetheless, it is often the case that repeated monetary easing measures produce diminishing returns, so I don’t think we can expect LTRO 2 to result in the same easing of pressures in Italian and Spanish bond yields that December’s ECB loans triggered.
"That said, we are not discounting further LTRO down the line, depending on where the debt crisis heads from here.
"What is important now is that European banks use these funds to lend to individuals and businesses to stimulate economic growth, rather than just buying up government bonds.
"The market seems to be adopting a “buy the rumour, sell the fact” response to the LTRO news so far, with EUR/USD losing half a cent. We may well see a ‘risk on’ tone push this pair higher towards $1.35 once the dust settles though."
The loans are aimed to help continue to ease the eurozone debt crisis, and help banks improve their liquidity.
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