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 progression compared to the last repayments made by the banks during the previous chances.
This acceleration is related to the tightening decided by the Frankfurt institution at its last monetary policy meeting in December.
The three-year loans granted to banks between September 2019 and December 2021, totaling €2.339 billion, provided monetary support during the most acute phase of the Covid-19 pandemic.
Called TLTRO 3, they were priced very cheaply – a negative 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.
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Making the terms of TLTROs more onerous for banks reflects the ECB’s desire to start reducing its balance sheet, which has grown enormously in recent years, to support its fight against inflation.
Beyond 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 the cost of credit 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 the price increases.