ECB's Weidmann sees no need now for new LTRO, other measures

The head of Germany's Bundesbank sees no need at present for the European Central Bank to make fresh long-term loans to banks and it will not deploy them simply because market interest rates have risen, he said in an interview with Reuters. Jens Weidmann is widely seen as the most hawkish policymaker on the ECB's 23-man Governing Council.
Market rates moved higher over the summer on expectations the US Federal Reserve would start unwinding its stimulus and the ECB is watching them closely, concerned that a sustained rise could threaten the euro zone's fragile economic recovery. The rise subsided after the Fed delayed a reduction in its bond purchases, but the early repayment of two previous long-term loans to banks, or LTROs, extended by the ECB in late 2011 and early 2012 is sucking "excess liquidity" out of the system and risks pushing up market rates.
"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. "We are always ready, if it is necessary, to act."
ECB experts are analysing the option of issuing LTROs. The central bank deployed these cheap loans to inject over 1 trillion euros ($1.36 trillion) 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". New LTROs could be used to avoid what Draghi last week called a "liquidity accident" - banks running short of funds - but the ECB experts have yet to finish their work, which the Council will review before deciding whether to use the loans.
A new LTRO could aim to raise excess liquidity - the amount of money beyond what the banking system needs to function - and ease banks' funding situation before the ECB's asset quality review (AQR) next year, a precursor to its new supervisory role. Excess liquidity has fallen to 222 billion euros from over 800 billion early last year, approaching a level expected to push market rates up and closer to the ECB's main interest rate.