Markets

Trim liquidity from markets

FRANKFURT : The European Central Bank should remove additional money from markets to curb inflationary pressures, even i

Published June 16, 2011 Updated June 16, 2011 09:55am

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By Muhammad Iqbal

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The ECB started to offer banks unlimited funds in its liquidity operations in October 2008 and said last week it would continue that for at least another three months.

"The overall picture continues to point to a need for further liquidity absorption. Hence, the unwinding of excess liquidity may continue to dampen loan and money growth," staff said in an article in the June bulletin.

"In this case, low rates of money and credit growth would reflect the ongoing adjustment towards a level of money and credit relative to output which is sustainable in the long term."

The ECB also said the amount of accumulated excess liquidity has declined less and remains larger than during the slowdown of the early 1990s.

Excess liquidity may generate price pressures in asset and product markets, it said.

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