The European Central Bank (ECB) said on Friday it would withdraw up to another €150 billion ($215 billion) from eurozone money markets in a six-day operation, marking three days in a row of vigorous action to drain excessive liquidity.
Overall, the amounts set to have been withdrawn over the three days are nearly equal to a huge injection made on Tuesday, against a background of twin attacks by the ECB to ease liquidity strains over the year-end and to clamp down on above-target inflation.
The ECB set a fixed rate of 4.0 per cent for the transaction, the same level as its benchmark lending rate, a move aimed to "align short-term interest rates with the minimum bid rate," a bank statement said.
The operation would be settled on Friday and mature next Thursday, the bank added.
ECB officials have been providing longer-term cash, albeit still through the short-term money markets, for banks which need to meet minimum reserve requirements at the end of the year, while siphoning off very short-term funds to avoid a build-up of liquidity that could fuel inflation.
In Vienna on Friday, the Austrian member of the ECB's governing council Klaus Liebscher insisted in the Kurier newspaper that the central bank would do everything necessary to bring down eurozone inflation, which reached a peak of 3.1 per cent in November, within the bank's upper target limit of 2.0 per cent.
The bank's operation on Friday was similar to one on Thursday for the same amount after overnight interbank interest rates fell to 3.75 per cent, a sign of a surplus of available funds.
On Wednesday an initial withdrawal had removed more than €133 billion.
On Tuesday, the bank launched its biggest ever injection of funds into the markets on which banks lend to each other, providing nearly €350 billion for two weeks at a flat rate of 4.21 per cent to help banks get through a crunch period at the end of the year.
Since then the ECB has taken care to wipe up any excessive cash.
Conditions on euro area money markets remain tight, in particular for periods beyond two weeks, because banks have become wary of lending to each other since the US subprime crisis emerged in August.
Banks do not know how exposed counterparts are to losses stemming from the collapse of the US market for high-risk mortgages and prefer to abstain from lending amid the uncertainty.
With the end of the year approaching, the banks also want to make sure their books show ample cash reserves. (AFP)