The European Central Bank raised its emergency funding for Greek banks slightly on Thursday in a step to help banks partially reopen after Eurozone governments agreed in principle to grant Athens a new three-year loan. ECB President Mario Draghi said the bank’s governing council had increased emergency liquidity assistance by €900m for one week at the request of the Bank of Greece.

He said it was hard to predict when capital controls imposed on June 29 after the breakdown of bailout negotiations could be lifted, but it was important to avoid a run on the banks.

Rebutting criticism in Greece that the ECB had starved Greeks of cash, he noted that the biggest deposit flight had coincided with political events such as the January election and the collapse of bailout talks in June.

Before agreeing to raise Emergency Liquidity Assistance (ELA), the central bank needed to ensure that Greece will have the temporary financing to repay a €3.5bn plus interest payment due to the ECB on Monday. Draghi said all evidence indicated that Greece would make that July 20 payment and clear its arrears to the International Monetary Fund. A temporary €7bn EU loan has been agreed in principle but technical details will take until Friday to iron out.

Earlier, the ECB held interest rates steady and Draghi said the central bank would fully implement its quantitative easing government bond-buying programme up to September 2016 to support a broadening economic recovery and help the euro area return to its inflation target of just below 2.0%. He promised more action if needed.

Darren McKinley Equity Analyst

 

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