Has it really been three years?
It is three years to the day since the European Central Bank first threw unlimited amounts of cheap cash at banks in a bid to ease liquidity logjams, and at least one of its 22 policymakers sees no reason to rush for the exit yet.
“We remain sensitive to the liquidity needs in the banking sector and, as we have been doing since the beginning of the crisis, we will continue to provide liquidity as necessary,” Cyprus central bank governor Athanasios Orphanides said in an interview with Reuters.
The ECB has promised to announce on Sept. 2 whether it will extend its open-door liquidity policy beyond September for three-month operations and beyond October for its main one-week operations.
As a result of the liquidity flood and drastic interest rate cuts, overnight euro interest rates are now just 0.3 percent , compared to as high as 4.6 percent on August 9, 2007 when subprime tensions in the United States first spilled over to European money markets.
The ECB stunned markets by lending banks a then-record sum of 95 billion euros in overnight cash, kicking off a wave of similar action by other central banks including the U.S. Federal Reserve and the Bank of Japan.
“It seems probable that the ECB will have to continue to intervene, by injecting liquidity, or otherwise, to stabilize the markets,” Barclays Capital analyst Laurent Fransolet wrote at the time. Perhaps Orphanides’ comments show the same statement still holds true today.