It is open war on the risk of deflation. After the cut in the reference rate from 0,25 to 0,15%, new historic low, the president of the ECB, Mario Draghi, announced at a press conference in Frankfurt a "package of measures" to bring inflation back in the Eurozone "close to but below 2% ”, that is in line with the targets of the central institution.
First, the Eurotower will stop the weekly operations with which it reabsorbs the liquidity created by buying government bonds during the debt crisis, amounting to around 165 billion euros.
The new measures announced by Draghi then include "new long-term refinancing operations for the banking system (or Ltro auctions, such as those of December 2011 and February 2012, ed), a preparatory work linked to the purchase of ABS (securitized securities guaranteed by loans and mortgages that the ECB accepts from banks as collateral, ed) and an extension of fixed-rate loans".
There will be two Ltro loans to banks (September and December 2014), but this time, unlike the two previous operations, they will be linked to the use of liquidity in favor of households and businesses (which is why they will take on the name of Tltro, i.e. targeted longer- term refinancing operations), with the exclusion of mortgages for home purchases. The loans will expire in 2018. The initial amount that will be mobilized for these interventions will be equal to 400 billion euros.
In a first phase, banks will be able to borrow up to 7% of their total loans to the private (non-financial) sector net of outstanding mortgage loans as at 30 April 2014.
Furthermore, from March 2015 to June 2016, the counterparties to these loans will be able to request further loans each quarter up to three times the amount of their loans to the non-financial private sector of the Eurozone (again excluding mortgages).
As for the interest rate of the Ltro loans, it will be established, on the basis of the maturity of each operation, taking into account the main refinancing rate of the Eurozone prevailing at the time of the operation plus ten basis points. After two years it will be possible to start repaying the loans.
All these measures were also necessary because, in the meantime, the ECB has cut its inflation estimates for the Eurozone again, bringing them to 0,7% for 2014, 1,1% for 2015 and 1,4% for the following year. Three months ago economists were forecasting 1%, 1,3% and 1,5% respectively.
