ECB sees less demand for three-month loans

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The European Central Bank said Wednesday that demand for exceptional three-month loans fell compared with the amount arriving at maturity, a sign of less tension on money markets.

The ECB said 270 commercial banks borrowed a total of 149.5 billion euros (195.7 billion dollars) during a long term refinancing operation that is part of the bank's toolkit to ensure financial markets keep running smoothly.

UniCredit fixed income strategist Luca Cazzulani had expected strong demand for the funds, but said that demand of less than 150 billion euros "would signal a move towards normalization" of interbank lending markets.

The cash was lent at the average rate of ECB loan operations between now and March 31, which means it is almost certain to be 1.0 percent.

Because about 200 billion euros in loans mature on Thursday, the difference of around 50 billion would be withdrawn from the eurozone money supply.

Cazzulani reckoned there was a greater chance therefore of the ECB looking to resume undoing unorthodox financing measures on which some banks in Greece, Ireland and Portugal have come to depend.

"Chances that the ECB can resume the exit strategy at the March meeting would increase" with the result, he said.

The ECB has taken on heightened risk owing to the eurozone debt crisis, and wants governments to start carrying more of the load.

© 2010 AFP

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