- Simon Smith, chief economist at FXPro
A couple of weeks earlier we wrote the ECB will have to act soon amid falling central bank's excess liquidity that pushed the Euribor rate to the highest since August 2012. That time the ECB's excess liquidity stood at 131.2 billion euros– the lowest level since December 2011.
This week, however, European policymakers managed to lend enough cash for region's banks to keep overnight money market rates subdued this week as well as quell speculations of another rate cut. Investors focused on the ECB's cash injections this year, as some small take-ups boosted the overnight rate above the ECB's key refinancing rate of 0.25%. Investors interpreted these spikes as a potential warning of more stimulus from Mario Draghi and his team.
The ECB failed for the second time this year to drain the financial market of 177.5 billion euros in government securities, it still holds under its previous bond-buying programme. This week, on Tuesday, the central bank drained 151.1 billion euros from the market, with still some 26.3 billion missing the target. Together with taking 115.6 billion euros from the unlimited one-week loans, the ECB is not likely to have enough liquidity to keep rates steady around 0.19% in the coming week.
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