ECB released its weekly statement for the week ending on13 July.

Asset Side

On the asset side, weekly USD liquidity-providing operations increased from $4.3bn to $5.1bn (+$0.8bn). It seems that European banks continue to face difficulties in finding USD term funding, resulting in continued growth in USD swap usage. Lending to credit institutions increased by €5bn through a larger LTRO, while the MRO remained the same. ‘Other Claims’ (ELA) grew €2.8bn, reversing last week’s drop. This could indicate renewed difficulty to access normal central bank liquidity operations by troubled Euro countries (such as Greece) and/or larger capital outflows.

Liabilities Side

Banknotes remained steady while bank reserves decreased by €18.6bn. The large move of funds from the deposit facility to current accounts (due to the ECB dropping the deposit rate to zero) is quite evident. General government accounts decreased €3bn.

After posting a large drop of €10.2bn last week, ‘Liabilities to non euro area residents’ exploded by €32.5bn, a very large weekly change. One cannot be sure if the change is due to new euro outflows or if foreign central banks (such as the SNB) decided to liquidate securities holdings and move the funds to regular reserve accounts, something which sounds reasonable given the fact that (safe) government yield curves are quickly turning negative. Since both short-term securities and money market (eurepo) rates are now negative, a euro peg by central banks such as SNB will not provide significant interest income and will make the peg more difficult.

New MRO

This week’s MRO was quite lower than the maturing one, at €156,7bn compared with €163,6bn. This is a positive sign although i ‘m curious to see if ‘Other Claims’ (ELA) increase in next week’s statement.

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