Euro zone banks secured €442 billionin one-year funds from the European Central Bank in its first one-year operation this morning, its biggest-ever liquidity injection.
The massive loan at a flat rate of 1 per cent marks the latest step in the ECB's efforts to get liquidity flowing and fend off the impact of the financial market crisis.
The allotment beat median expectations of traders in a Reuters poll for €300 billion, with forecasts ranging from €60 billion to as high as €650 billion, and exceeds the previous record ECB allotment of €348.6 billion in December 2007.
The loan represents about 70 per cent of the ECB's outstanding liquidity operations and 5 per cent of euro zone economic output, and analysts said the generous supply of funds should bring down money market rates.
"It's an extremely generous offer from the ECB which you don't see from other central banks ... it's something which should help to keep down 12-month Euribor rates," Barclays Capital economist Julian Callow said.
"This is all about giving banks confidence in the term structure of their liabilities to ensure they can keep giving loans," he said.
Bank-to-bank interest rates are already at record lows in key maturities, with the 12-month bank-to-bank fixing at 1.570 per cent today, compared to a peak of 5.5 per cent last October.
The euro and shorter-dated euro zone government bond yields briefly fell to session lows when the ECB announced the results of the keenly-awaited operation, and shares picked up.
The tender of 12-month funding slashed demand for the ECB's three-month funds and other shorter-term operations.
Banks took just €6.4 billion in the ECB's latest three-month tender on Wednesday, a net drain of funds compared to the operation in March - which the tender is replacing - when banks took €28.8 billion.
Reuters