ECB Insight: Renewal of TLTROs Still to Be Discussed, But Looking Less Likely
14 March 2022
By David Barwick – FRANKFURT (Econostream) – The days of the targeted longer-term refinancing operations (TLTROs) of the European Central Bank seem likely to be numbered, Econostream understands.
Originally conceived in 2014, the third series was launched three years ago and with the outbreak of the pandemic became a key part of efforts to ensure the continued functioning of the economy, with the ECB introducing particularly attractive conditions including rates as low as 50 basis points below the average interest rate on the deposit facility, which has been at -0.5% since September 2019.
The TLTROs were not discussed at last week’s monetary policy meeting of the Governing Council, and the subject did not come up at the subsequent press conference of ECB President Christine Lagarde. Lagarde had indicated at February’s post-meeting presser that TLTROs might be discussed in March, ‘or later actually’, but more pressing issues this month argued clearly for ‘later’.
As it stands, the special interest rate period of the TLTROs is to end in June, though even the first of the ten three-year TLTRO III operations won’t mature until September and the last only in December 2024.
Although the ECB has not recently encouraged speculation about another such programme, even on less advantageous terms, Lagarde in December lauded the TLTROs for having ‘really been an incentive for banks to continue lending’ and being ‘very effective in supporting the financing of the economies at enterprise and household levels.’
The view that they were an unqualified success does not appear universal, and it now seems more likely that a TLTRO IV series is not in the offing.
‘It’s going to be discussed quite soon, but I would say that it’s a programme that is supposed to end’, an insider told Econostream. The general attitude on the Council with respect to a continuation is one of reluctance, he said.
‘Banks benefitted quite a lot from this instrument, but was the price worth it for the relatively marginal pick-up in credit?’, he said.
While the discussion has yet to take place and the outcome could still be affected by developments, as things stand now, he said, the most likely scenario is the TLTROs’ retirement.