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Nick Kounis, head of financial markets research at ABN AMRO, suggests that an extension of the current TLTRO programme has been part of their base case for the ECB in past few months, mainly based on the view that commercial banks will find it difficult to fully refinance the TLTRO funds in private sector debt markets.

Key Quotes

“Given the sharp slowdown in eurozone economic growth, the prospect of shrinking excess liquidity (which would occur from June 2020) also seems less desirable, and if anything the prospect of a fresh TLTRO has become more likely in our view, as the ECB seeks to keep financial conditions from tightening. However, recent commentary from the ECB suggests that an announcement may take some time to materialise.”

“As such, a June decision on TLTRO looks more likely now than a March announcement.”