JP Morgan says ECB ready to act
THE EUROPEAN Central Bank (ECB) may slash interest rates and pump more cheap cash into banks in response to the economic slowdown, JP Morgan forecast yesterday.
As the ECB had previously hoped the economy would be recovered by now, analysts believe that it may resort to another one-year long-term refinancing operation (LTRO) in July to maintain liquidity, or cut the main refinancing rate by another 25 basis points in September.
“Of course, should stresses build in financial markets, the ECB would respond much more aggressively,” said the forecast.
“In that case further 3-year LTROs and a reactivation of the securities market programme would come back into play, and further interest rate changes could not be ruled out either.”
Meanwhile the ECB revealed banks took almost €4bn (£3.2bn) of overnight loans from it yesterday, the highest since the Greek debt restructuring fuelled a jump in mid-March and dovetailing with Greek banks being cut off from mainstream ECB funding.
Use of the emergency window costs banks an extra 0.75 basis points over normal facilities.