ECB overnight borrowing jump seen temporary

A jump in overnight borrowing from the European Central Bank pointed to a bottleneck in the euro zone banking sector on Tuesday , but traders expected it was a temporary issue that ECB crisis measures would soon relieve. Borrowing from the central bank’s overnight window jumped to 1.259 billion euros from just 6 million the day before. The ECB charges 2.25 per cent interest, compared to the 1.5 per cent it charges in its regular refinancing operations, and the 0.874 per cent overnight cash is on offer on open markets.Traders were not immediately worried by the jump but will watch the borrowing trend closely in the coming days.“If it (the borrowing spike) is not there tomorrow then it was just a miscalculation by someone or because of an outflow that happened late in the day which was too late to be covered in the market,” said one euro zone-based trader. “If it continues beyond next week though it might be that someone has got a little problem and if it goes to 3 yards (billion), then to 5 and then to 7 then it would start to get a little scary.”Money markets remain in a fragile state following the recent escalation in the euro zone debt crisis, although tensions have subsided over the last week following an injection of six-month ECB emergency funding and a decisive move by the central bank to stabilise markets by buying Italian and Spanish bonds.With the ECB holding its regular handout of unlimited one-week funding on Tuesday, traders expected use of the expensive overnight facility to be short-lived.“There is the possibility that a bank needs money but I haven’t heard any rumours about any names,” said one euro zone-based money market trader.“The MRO (one-week refi) is today so that (use of overnight facility) should disappear anyway.” Banks took 148 billion euros at the one-week operation, exactly in line with expectations. The ECB’s decision to start buying government bonds again is another factor affecting money markets. It spent a record 22 billion euros last week, taking the controversial programme’s total to 96 billion euros.Later on Tuesday it will hold its weekly ‘sterilisation’ operation, where it bids to counterbalance the purchases by getting banks to deposit an equal amount - 96 billion euros - with the ECB. From / Gulf Today