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ECB not expected to be overly alarmed by today’s TLTRO take-up outcome - ING

FXStreet (Łódź) - Martin van Vlietfrom ING comments the reasons for the disappointing first ECB TLTRO allotment at €82.6B and on the central bank's possible reaction to it.

Key quotes

"We think there are a couple of reasons for the lower-than-expected take-up."

"First of all, some banks in the periphery intent on substituting (part of their) 3-year LTRO funds with TLTRO funds may have opted to wait until the December TLTRO."

"Secondly, some banks might have delayed participation until after the publication of the results of the ECB’s Comprehensive Assessment – and after the Scottish independence vote."

"Moreover, perhaps banks first want to see the details of the ECB’s covered bond and ABS purchase programmes, which will be unveiled early next month, before pledging these assets as collateral in an TLTRO."

"That said, today’s lower-than-expected allotment will raise further doubts about the feasibility of the ECB’s goal to increase its balance sheet by around €1 trillion (through the eight TLTROs and asset purchases)."

"However, while we agree that the ECB will struggle to meet this goal, we do not think the ECB will be highly alarmed by today’s outcome."

"Indeed, with the December TLTRO potentially seeing stronger demand for the reasons we described, they will be cautious to draw strong conclusions about the appetite for this programme."

"The boost to 'excess liquidity' in the money market will not be felt until 24 September, when the TLTRO settles. In this regard, much will also depend on how much liquidity will be drained in next week’s 3-year LTRO repayment (details to be announced tomorrow)."

"On balance, we expect the level of excess liquidity to rise from the current €93bn to around €150bn after TLTRO settlement. Such a level would seem to be consistent with EONIA trading in the -5bps to -10bps range."

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