ECB likely to extend most favorable TLTRO interest rate – Bloomberg Economics

Dhwani Mehta FXStreet

The European Central Bank (ECB) is expected to announce a 12-month extension to the most favorable interest rate on the TLTROs by the end of this year, according to Bloomberg Economics.

Key takeaways

“The ECB appears to have moved away from relying on its tiering system to reduce the cost to banks of excess reserves and is depending more on the interest rate of its targeted longer-term refinancing operations.”

“The change would significantly reduce the pain to bank profits from the negative deposit rate and do away with the need for the tiering multiplier to be adjusted.”

On Monday, ECB President Christine Lagarde said that they are “closely monitoring” the market for government bonds, hinting that the central bank may act to prevent the surge in yields.

Market implications

The 10-year German bond yields rebound 5 bps to -0.30% on Tuesday, reversing almost the entire drop triggered by Lagarde’s comments.

However, EUR/USD is testing lows at 1.2146 amid resurgent US dollar demand across the board, as the risk sentiment turns sour in Europe.

Eurozone final CPI meets estimates with 0.2% MoM in January, EUR/USD tests lows

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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