VIENNA (Reuters) - The European Central Bank will provide more liquidity by the time cheap long-term loans it made in late 2011 and early 2012 expire, governing council member Ewald Nowotny told CNBC.
“What is clear is there will be liquidity provision,” he said in an interview aired on Thursday, declining to anticipate whether the ECB would do this through renewed long-term refinancing operations (LTROs) or other means.
The euro fell on his comments, breaking below $1.37.
The ECB injected more than 1 trillion euros (861 billion pounds) into the banking system via ultra-cheap three-year loans in December 2011 and February 2012, which means the first tranche of repayments is due late next year.
While some banks that took the LTROs have repaid them early, that cutoff point could still cause financial strains for some of the euro zone’s more vulnerable lenders.
Nowotny said the ECB wanted to avoid sudden stress on money markets from an abrupt end to the loans. “We are careful not to have some kind of sudden effects,” he said.
A firm majority of economists polled by Reuters on Wednesday said they expected the ECB would provide another round of cheap, long-term loans, probably early next year.
People familiar with the internal debate on the ECB’s governing council have told Reuters that more LTROs is one of three possible responses to a strengthening of the euro currency being considered by the 23-man body.
The others are an interest rate cut and the option of sitting tight and doing nothing.
Asked whether new LTROs or shorter-term loans were more likely, Nowotny declined to speculate, but he raised the issue that banks had varying liquidity needs according to where in the euro zone they were.
“With regard to the need for ECB liquidity, we do see of course quite a different situation in different countries,” Nowotny said. “There is not only a timing issue but also a structural issue.”
He told news agency MNI on Tuesday there was no reason for the ECB to intervene to weaken the euro’s exchange rate, and that said the impact of another interest rate cut would be limited.
The euro has climbed more than 8 percent against the dollar since early July.
Reporting by Georgina Prodhan; Editing by John Stonestreet