ECB pushes out rate hike and offers new loans to banks

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Europe

The European Central Bank pushed out the timing of its first post-crisis rate hike to next year at the earliest on Thursday and offered banks new rounds of multi-year cash.

With a global trade war and Brexit uncertainty already biting, growth in the 19-member currency bloc has cooled quickly, raising fears that the dip could morph into a downturn if banks started reducing the supply of new loans.

In response, the ECB said its interest rates will remain at record lows at least through the end of this year.

"The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary," the ECB said in a statement.

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In addition, it launched a new Targeted Long-Term Refinancing Operation (TLTRO), partly aimed at helping banks roll over 720 billion euros in existing ECB loans and avoid a credit squeeze that could exacerbate the current economic slowdown.

"A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years," the ECB said.

"Under TLTRO-III, counterparties will be entitled to borrow up to 30 percent of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation," the ECB said.

With Thursday's decision, the ECB's rate on bank overnight deposits, which is currently its primary interest rate tool, remains at -0.40 percent.

The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00 percent while the rate on the marginal lending facility — the emergency overnight borrowing rate for banks — remains at 0.25 percent.

Source(s): Reuters