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Fellow Governing Council member Yves Mersch of Luxembourgshared Nowotny's sentiment about drawing conclusions soon. "A strategy of taking money from the ECB and then puttingit back into the deposit facility can only be short term," hesaid. It is also too early to think about scaling up the ECB's 60billion euro kitty to buy covered bonds, he said "I expect that it will increase credit ... We will look atthe development over the summer and then have a review in theautumn.
It's too early to speculate about further steps,"Nowotny said. [ID:nL5164229] Bundesbank President Weber has raised the prospect the ECBcould circumvent the banking sector altogether if lendingdoesn't free up. Overnight deposits at the ECB spiked after the bank poured442 billion euros into money markets on June 25. Nowotnyshrugged off worries that banks may keep hoarding the funds,rather than lend them on. ECB President Jean-Claude Trichet again urged banks to lendover the weekend. [ID:nL5643198] Nowotny's comments also put him at odds with authorities inGermany, where Finance Minister Peer Steinbrueck said over theweekend that the government would sit down with the Bundesbankand come up with a solution unless there was a turnaround frombanks.
Bankshoarded a record amount of cash at the ECB, figures revealed onMonday and growth in lending has slowed to an all-time low Formore see [ID:nFAT004776] and [ID:nLU302287]. Nowotny, who heads Austria's central bank and sits on theECB's Governing Council, said he saw "no necessity" to bypassbanks to kick start the flow of credit. "For banks, it is intheir own interest to provide credit," he told a newsconference. Data continue to stoke concerns the finances of firms andconsumers are being strangled as banks rein in lending.
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