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TLTRO take-up tomorrow may undershoot €150bn consensus - ING

FXStreet (Łódź) - Martin Van Viles from ING expects the take-up in ECB's first first targeted long-term
refinancing operation tomorrow might be below expectations of 150 billion euros.

Key quotes

"This shouldn’t be an extra reason for concern about the ECB’s balance sheet expansion intentions."

"The second one is scheduled for December, and between March 2015 and June 2016 six additional TLTROS will be held."

"We expect €250-300bn in actual take-up from the two instalments. With banks in the periphery currently still relying on around €280bn in 3-year LTRO funds (which have to be fully repaid by Jan/Feb 2015), we expect them to use nearly all of their borrowing allowance."

"If the allotted amount in the first TLTRO is indeed lower than expected – to be sure, ourconviction level is not very high – this is likely to raise further questions over the feasibility of the ECB’s goal of a balance sheet expansion of around €1tr (through a combination ofcovered bond and ABS purchases and the TLTROs)."

"However, while we agree that the ECB will likely struggle to meet this goal, we would suggest to wait until after the December TLTRO before drawing strong conclusions about the appetite for this
programme."

"The impact on money markets will not be felt until 24 September, when the TLTRO settles."

"Taking into account some reduction in MRO reliance and some further 3-year LTRO repayments next week, we see the level of excess liquidity rising from the current €93bn to around €175bn after TLTRO settlement."

"This should be high enough to push the EONIA fixing further into negative territory. Indeed, such a level would seem to be consistent with EONIA trading in the -5bp to -10bp."

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