ECB Likely to Extend Most Favorable TLTRO Interest Rate

(Bloomberg) -- The European Central Bank appears to have moved away from relying on its tiering system to reduce the cost to banks of excess reserves and is depending more on the interest rate of its targeted longer-term refinancing operations. Bloomberg Economics expects the Governing Council to announce by the end of this year that the most favorable interest rate on the TLTROs -- the deposit rate minus 50 basis points -- will be extended by another 12 months to June 2023. That change will significantly reduce the pain to bank profits from the negative deposit rate and do away with the need for the tiering multiplier to be adjusted.

©2021 Bloomberg L.P.