ECB policymakers see no need for new long term loan now

Benoit Coeure, executive board member of the European Central Bank (ECB) poses for a photo after an interview with Reuters in Frankfurt February 26, 2013. REUTERS/Ralph Orlowski

By Emma Farge and Paul Carrel

GENEVA/FRANKFURT (Reuters) - Two leading European Central Bank policymakers said they saw no need now for the ECB to make fresh long-term loans to banks, playing down the prospect of any immediate action to tackle moves in money market rates.

The comments from Benoit Coeure, a member of the ECB's Executive Board and generally seen as a policy dove, and the hawkish Bundesbank chief, Jens Weidmann, suggest there is little urgency on the Governing Council for a new splurge of liquidity.

The ECB is paying close attention to market rates, which moved higher over the summer, concerned that a sustained rise could threaten the euro zone's fragile recovery.

Asked by Reuters whether there was any need for policy action with measures such as the long-term loans (LTROs) to address market interest rates, Coeure said: "As long as money market rates are not moving, I don't see a reason to act."

"It's an important discussion, it's an ongoing discussion in the Governing Council but it's not an urgent discussion," he added at an event at Geneva's Graduate Institute.

Market rates moved higher over the summer on expectations the U.S. Federal Reserve would start unwinding its stimulus and the ECB is watching them closely.

The rise subsided after the Fed delayed a reduction in its bond purchases, but the early repayment of two previous LTROs, extended by the ECB in late 2011 and early 2012, is sucking excess liquidity out of the system which risks pushing up market rates.

ECB experts are analysing the option of issuing new LTROs.

The central bank deployed these cheap loans to inject over 1 trillion euros (852.23 billion pounds) into the system soon after Mario Draghi took over as ECB president in November 2011 - a policy measure he has said "avoided a major, major credit crunch".

Draghi said after the ECB's policy meeting last week the central bank is watching moves in market interest rates closely and is ready to use any policy option to temper them if needed.


However, Weidmann told Reuters in an interview he saw no need at present for the ECB to deploy fresh LTROs and said it will not deploy them simply because market rates have risen.

"One cannot infer an automatic monetary policy reaction from a change in money market rates," Weidmann told Reuters in an interview conducted on Monday and published on Wednesday. "There is no such automatism."

"LTROs are only one of many possible instruments," he added. "Which instrument we, if necessary, deploy, we will then have to discuss. But at the moment I see no need."

Coeure said in a speech in Geneva that a weak euro zone growth outlook supports the ECB's readiness to ease policy if needed.

Asked afterwards what the ECB could do if the euro zone's recovery faltered, Coeure added: "We still need low rates to protect (the) recovery ... we still have the possibility to cut rates and we've been clear on that."

The ECB's main interest rate is at a record low 0.5 percent.

Abandoning its traditional policy of never pre-committing on future rates, the ECB said in July it would keep its interest rates at present or lower levels for an "extended period" - its first use of forward guidance.

Coeure said ECB staff forecasts for a euro zone contraction this year and timid growth of just 1 percent in 2014 "justify an easing bias to future monetary policy decisions."

(Editing by Ruth Pitchford)