ECB issues new dose of stimulus

THE European Central Bank has handed out 130 billion euros ($A195 billion) in cheap, long-term loans to banks - part of its effort to stimulate the struggling eurozone economy.

THE amount was closely watched in the markets because ECB president Mario Draghi has said the bank will add roughly 1 trillion euros in new stimulus in coming months.

The amount taken by banks was about what market analysts had expected.Banks got money for four years at the very low interest rate of 0.15 per cent - money the ECB hopes they will lend to companies so they can expand, hire people and get the economy going again.Top ECB official Benoit Coeure said the central bank's credit offers, including an 82.6 billion-euro round of loans in September, "create conditions that stimulate credit growth to the real economy."Still, some think the amounts are too low to help achieve the 1 trillion-goal - and makes it more likely that the ECB will have to resort to new stimulus programs to do that. That could include large-scale purchases of government bonds."The ECB will have to employ additional tools to reach its intended balance sheet size," economist Christian Schulz at Berenberg Bank wrote in a note to investors.The economy of the 18 countries that use the euro grew only 0.2 per cent in the third quarter from the previous three-month period. Inflation remains alarmingly weak at 0.3 per cent, and unemployment is high at 11.5 per cent.One problem with the bank loans is that it's up to the banks how much they want to take. That means the exact amount of stimulus is out of the ECB leadership's hands. Purchasing large amounts of government bonds would give the ECB more direct control of the amount of stimulus it is pushing into the financial system.The ECB is already making limited purchases of bonds backed by bank loans to companies - a step aimed at further easing credit. But analysts say there may not be enough of those bonds around to achieve the desired stimulus either.

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