The euro fell to a three-month low this afternoon after the European Central Bank’s Benoit Coeure said a new round of cheap loans to Eurozone banks was possible.
The ECB board member said the bloc’s economic slowdown would be “stronger and broader” than expected and that the possibility of more multi-year loans was being discussed.
A previous round of loans through its current Targeted Long-Term Refinancing Operation (TLTRO) must be paid back in 2020, leaving some banks, particular in Italy, facing a potential funding shortage.
Eurozone bank stocks rallied as a result of Coeure’s comments which gave weight to speculation that the ECB was set to deploy stimulus measures to counteract the bloc’s slowdown.
The Borsa Italiana index of banks jumped 3.9 per cent to its highest level since the beginning of December.
But the euro fell to $1.1234, its lowest since 12 November before recovering ground slightly to trade 0.25 per cent down.
“It is possible, we are discussing it, but we want to be sure that it serves a purpose,” Coeure said in New York earlier today.
“There might be scope for another TLTRO,” he added, also suggesting that the path to inflation would be more shallow and the economic slowdown worse than expected.
It comes amid a consistent spell of weak economic data that has plagued the bloc in recent months.
Italy entered a recession at the end of last year, and Germany narrowly avoiding joining it with a flat GDP growth in the final quarter.