ECB Sees Record Refinancing Demand

Eurozone banks have rushed to take out cheap three-year loans that were offered by the ECB, totalling €489BN. This was an unexpected and drastic move that was clearly designed to stimulate an economy low on confidence.

523 European Institutions took part in this access for cash, which was the ECB`s biggest liquidity operation to date, that far exceeded market expectations. Many investors however view these movements as a stop gap solution, with the economic census perceiving it as a measure simply implemented to buy time.

There are concerns however, that the money that has been made available to the banks will be used to fund the purchase of peripheral debt and to buy back the bonds that have been sold.

Volatility was evident yesterday in the EUR, off the back of news that the Italian economy had shrunk by 0.2%, which was the first contraction since 2009.

Markets are indicating that the austerity measures put in place earlier this month by the Italian government are causing concern and are insufficient, with predictions around the growth of their economy to contract by another 0.4% in 2012.

Yesterday the single currency hit a yearly high of 1.20 and although turmoil is on-going in the FX markets , this movement had a positive follow through effect on stocks and commodities, with several banks up 8-9% in intraday trading.

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ECB: European Central Bank- The institution of the European Union (EU) which administers the monetary policy of the 17 EU Eurozone member states.