FRANKFURT (Reuters) – European Central Bank policymakers took a gloomy view on the euro zone economy at their last policy meeting and asked for swift preparations for giving banks more long-term loans, minutes of the meeting showed on Thursday.
With growth unexpectedly weak for the third straight quarter, policymakers are increasingly concerned that global uncertainty is derailing the euro zone’s recovery, undoing years of work by the ECB to kickstart the bloc.
Although the ECB just ended a 2.6 trillion euro (£2.3 trillion) bond purchase scheme to stimulate growth, it is now preparing the ground for giving banks more multi-year, cheap loans to banks to ensure they keep credit flowing to the economy even during the slowdown.
This would also help lenders in Italy and other southern European countries avoid a funding cliff edge when the previous Targeted Long-Term Refinancing Operation (TLTRO) starts maturing next year.
Policymakers at the January meeting said they wouldn’t be rushed into a new TLTRO but asked ECB staff to start working on such a facility.
“While any decisions in this respect should not be taken too hastily, the technical analyses required to prepare policy options for future liquidity operations needed to proceed swiftly,” policymakers said.
The ECB next meets on March 7 and policymakers are expected to discuss the new bank loans, even if a final decision could still take months.
With ECB board members Benoit Coeure and Peter Praet openly discussing a new TLTRO, the real question is under what terms the loans will be provided.
Sources earlier told Reuters that the ECB is looking to give the loans at a variable interest rate, possibly tied to its main refinancing rate, and for a shorter duration than a previous, four-year facility.
Austrian central bank governor Ewald Nowotny emerged as a lone dissenting voice on Thursday, saying in an interview he saw “no need for further liquidity” and that the ECB should have already raised its deposit rate by 20 basis points to -0.20 percent.
Yet a rate hike this year appears off the table since the ECB last month warned of “downside risks” to the euro zone’s economy.
And Olli Rehn, the Finnish central bank governor, said on Thursday the ECB should be ready “to do whatever it takes” in the event things deteriorated further.
Still, policymakers at the January meeting continued to argue that the dip is merely a slowdown and not the start of Europe’s next recession.
While they said 2019 growth forecasts would need to be cut, they left open the question whether the medium term outlook, key for ECB policy, would need to be changed.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)