ECB extends liquidity for non-euro central banks

The European Central Bank announced it has established or extended liquidity lines with central banks in Poland and four other countries to support them in their efforts to defend their currencies against the effects of the Russian invasion of Ukraine.

The ECB said it agreed the euro liquidity lines with the non-euro area central banks until January 15, 2023.

The move follows a sell off of central European currencies following the invasion of Ukraine.

Under the new swap line, Polish central bank Narodowy Bank Polski (NBP) will be able to borrow up to €10 billion from the ECB in exchange for Polish zloty.

Under their respective repo line agreements, Hungary’s Magyar Nemzeti Bank can borrow up to €4 billion from the ECB, Banka e Shqipërisë (Bank of Albania) can borrow up to €400 million, Народна банка на Република Северна Македонија (National Bank of the Republic of North Macedonia) can borrow up to €400 million, and Banca Centrale della Repubblica di San Marino (Central Bank of the Republic of San Marino) can borrow up to €100 million.

Under a repo line, a national central bank can borrow euro up to the specified limit in exchange for adequate euro-denominated collateral.

“The European Central Bank (ECB) and Narodowy Bank Polski have agreed to set up a precautionary swap line to provide euro liquidity to financial institutions in Poland,” said the ECB.

“The ECB has also decided to extend its temporary bilateral repo lines to the central banks of Hungary, Albania, the Republic of North Macedonia and the Republic of San Marino.

“The size of the individual agreements will remain unchanged.

“These bilateral lines were established in 2020 to provide euro liquidity to financial institutions in those countries via their central banks.

“The lines were due to expire at the end of March 2022, as they were specifically aimed at addressing possible euro liquidity needs in the presence of market dysfunctions due to the coronavirus (COVID-19) pandemic.

“Following requests from the central banks and based on a positive case-by-case assessment by the Governing Council, these swap and repo lines have been granted until 15 January 2023.

“In the context of heightened geopolitical tensions triggered by the Russian invasion of Ukraine, the lines are designed to prevent spillover effects in euro area financial markets and economies that might adversely affect the smooth transmission of the ECB’s monetary policy.

“At the same time, full regard has been given to the applicable EU sanctions, with which the ECB expects its counterparties to comply, so that the lines are not used to circumvent the sanctions.

“Temporary agreements complement the ECB’s standing swap lines and EUREP repo agreements. The EUREP facility was extended to 15 January 2023 as part of ECB’s monetary policy decisions of 10 March 2022.”