The problems faced by Spain and the long-term effects of the European Central Bank’s mass liquidity injections are still weighing down stock and currency markets around the world.
On Wednesday, poor Spanish bond auction results sent markets down. European markets and the euro continued their downward trend on Thursday.
And analysts and economists warn that the long-term effects of the ECB’s liquidity injection, known as a long-term refinancing operation ( LTRO ) and one of the key drivers of this year’s rally, have yet to be felt.
“You need time for the LTRO to have an impact. If you look at credit numbers and borrowing costs in the periphery, it hasn’t had much impact yet,” Thanos Vamvakidis, head of European G10 foreign exchange strategy, BofA Merrill Lynch, told CNBC Thursday.
“We’re very concerned about the growth outlook for the periphery in the second half of the year.”
ECB President Mario Draghi said Wednesday that the central bank will not exit crisis mode yet, as he waits to see whether the second LTRO affects the real economy in Europe. There had been speculation that the ECB might lower interest rates even further from their current historic low of 1 percent.
“Even if he was to reduce rates today, it wouldn’t have much direct impact in the periphery,” Vamvakidis said.Page 1 of 2 | Next Page