The European Central Bank seems confident it will next week manage, without incident, the biggest ever repayment of liquidity in its 11-year history. A year ago it provided €442bn in one-year loans to 1,121 eurozone banks as part of its emergency measures to shore-up the financial system — the largest amount ever provided in a single ECB liquidity operation. On Thursday, all the money has to be repaid.

Earlier this year the worry was of tensions rising as the repayment deadline loomed. As part of its ‘exit strategy’, the ECB governing council, which met yesterday for a regular non-monetary policy meeting, dropped one-year liquidity offers.

A common assumption is that overnight market interest rates may still rise as the €442bn is repaid. But the euro’s monetary guardian has taken steps to smooth the process, and any impact on market interest rates could well be modest. On Wednesday, the ECB will meet in full banks’ demands for three month liquidity, and then on Thursday itself, the ECB will offer unlimited funds for six days, which will tide banks over to the following week’s regular offer of seven days funds. Read more