Honohan sees no ECB liquidity tool in near term
11 April 2011 11:35
(Reuters) - A new European Central Bank liquidity facility to help Ireland's struggling banks is not likely "for the moment", the country's central bank Governor Patrick Honohan was quoted as saying on Monday.
In an interview with Market News International, he also said it was too soon to say when the Irish state could return to markets for funding instead of relying on its EU/IMF rescue package.
The ECB defied market expectations late last month by not announcing a new liquidity facility to ensure that struggling banks in Ireland, and potentially in future other euro zone countries, had more guaranteed access to medium-term funding.
Honohan, who is also an ECB Governing Council member, said such a move was unlikely in the near term, although he did not rule it out completely.
"I read in the newspapers many stories about this thing and for sure there are many ideas about ways of dealing with the situation. I am not really anticipating any major action on this front (liquidity facility) for the moment," Honohan told the news agency.
He also said that solving bank problems was the governments' task more than that of the ECB.
Honohan also said the ECB would not necessarily have to find a solution to the persistent bidders problem -- banks which have been shut out of markets and refinance themselves through the central bank -- before it could move back to auctions in its liquidity operations.
"It is not precluded," he was quoted as saying, in reference to ECB reinstituting refinancing auctions.
Honohan also denied that an increase in ECB interest rates would pose a major problem for Irish banks. The ECB raised its rates by 25 basis points to 1.25 percent last week.
"(The rate increase) is very much a secondary issue in terms of the recovery of the Irish banks," he said, adding he was confident the banks would not need more than the 24 billion euros seen in stress tests in terms of additional capital.
Asked when Ireland could return to markets for funding, Honohan said: "(We are at) a very early stage in the programme." It's hard to predict when Ireland will get back to market funding."
Turning to euro zone inflation expectations, Honohan said they were not rising despite prices increasing faster than the central bank's target of just below 2 percent.
"For the moment, this (inflation expectations) does not seem to have been something that is under threat," he said.
Honohan was also quoted as saying that the 17-country region's central bank had deliberated before choosing the term "monitor very carefully" for its statement.
"The wording is there, it stands for itself. chosen carefully," he said.