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the banks accelerate the repayment of cheap ECB loans

296 billion euros in cheap loans will be repaid by banks to the ECB in an anti-inflation context.

Eurozone banks will prepay 296 billion euros in cheap loans provided by the European Central Bank, which recently tightened conditions as part of its fight against inflation, the monetary institute announced on Friday. This figure shows a clear increase compared to the latest repayments from the banks under previous installments. This acceleration is related to the tightening decided by the Frankfurt institution at its last monetary policy meeting in December.

Three-year loans granted to banks between September 2019 and December 2021, totaling €2.339 billion, provided financial support during the most acute phase of the Covid-19 pandemic. named “TLTRO 3”, they were priced very cheaply – with a negative exchange rate of up to -1% – on the condition that the banks redistributed this money in the form of loans to households or businesses. The guardians of the euro have taken the decision to end these generous conditions retroactively. The total outstanding amount of these “TLTRO 3” loans is still around €2.1 trillion on the ECB’s balance sheet. Making the terms of TLTROs more onerous for banks reflects the ECB’s desire to start shrinking its balance sheet, which has grown enormously in recent years, to support its fight against inflation.

In addition to this recalibration, the ECB’s main tool to contain prices has been sharp increases in its key interest rates, decided twice since July to raise credit costs and cool activity. These rate hikes will continue, Christine Lagarde confirmed on Friday in a speech in Frankfurt. The president of the ECB assessed that the recession threatening the euro area will not be sufficient to stem price increases.

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