Banks showed only moderate interest on Thursday in cheap loans that the European Central Bank (ECB) is offering in hopes of restoring commercial bank lending and combating low inflation.
The relatively modest response is likely to reinforce expectations that the central bank will soon have no choice but to begin large-scale asset purchases to pump money into the flagging eurozone economy.
Meanwhile, new inflation data from France on Thursday indicates that prices continue to rise at a worrisomely low rate. That could provide further impetus to the ECB to try new stimulus measures.
Banks drew 130 billion euros, or about $161 billion, in loans from the central bank, which offered a fixed interest rate of 0.15% for four years. But so far, since the cheap loans became available in September, European banks have taken only about half the money offered.
The money allotted by the central bank on Thursday was part of a broader effort by the central bank to inject as much as Euro 1 trillion into the eurozone economy, and to reverse a decline in inflation to levels that are considered dangerously low. The borrowing data on Thursday were closely watched as an indicator of whether the ECB would be able to meet its goal.
Interest by banks in the cheap cash was “perhaps not as bad as some had feared, but probably much lower than the ECB had hoped,” said Martin van Vliet, an economist at ING Bank.
Thursday’s loan data “will raise fresh doubts about the feasibility of the ECB’s intention to increase its balance sheet by around Euro 1 trillion,” Mr van Vliet said. The result “further shortens the odds,” he said, that the central bank will begin so-called quantitative easing — large-scale asset purchases to inject money into the financial system.
Quantitative easing is an approach the United States Federal Reserve and the Bank of England have both employed, and is considered a reason the American and British economies have fared better in recent years than the eurozone’s.
So far, the central bank has chosen not to take that route, in part because of opposition from some eurozone countries, including Germany. The European Central Bank’s president, Mario Draghi, has said for months that the central bank wants to gauge the effect of stimulus efforts already in place — like the cheap bank loans — before taking more aggressive steps.