(Bloomberg) — Euro-zone banks are gearing up for one more dose of ultra-cheap funding because the European Central Bank provides them each doable incentive to lend to the pandemic-stricken financial system.Thursday’s installment of focused loans, generally known as TLTROs, will give banks long-term loans for an rate of interest as little as minus 1% — that means the ECB pays them to borrow — so long as they lend the cash onto firms and households.Enticing because the supply is, banks are already well-funded after taking a report 1.three trillion euros ($1.5 trillion) within the earlier operation three months in the past. Estimates this time vary from 10 billion euros by Barclays Plc to 200 billion euros at NatWest Markets Plc. The outcome shall be introduced at 11:30 a.m. in Frankfurt.“More than 100 billion euros would mean we’re in business,” mentioned Rishi Mishra, an analyst at Futures First.The TLTRO has develop into one of many ECB’s most-important instruments as a result of it greater than compensates banks for the official coverage fee of minus 0.5%. The coverage fee is a cost on banks’ deposits, undercutting profitability and doubtlessly dissuading them from lending.Some economists reckon the ECB has discovered a dual-rate system that permits it to chop borrowing prices with no sensible restrict with out damaging the banking system.Nonetheless, the extraordinary entry to low cost cash — mixed with different financial stimulus resembling huge bond-buying applications — does increase the prospect of uncomfortable side effects resembling elevated asset costs and dangerous lending.It might even undermine the ECB’s affect over short-term market charges. Three-month Euribor — the speed at which banks can theoretically borrow from each other — fell to a report low of minus 0.508% this week.When it dropped beneath the ECB’s coverage fee final week, that was a phenomenon that had occurred solely as soon as earlier than, in August 2019, shortly earlier than the central bank reduce its deposit fee.Extra liquidity within the euro zone, the cash over and above that wanted to finance the financial system, will in all probability quickly cross three trillion euros for the primary time.Extra stimulus might be forward. The ECB initiatives that the financial system will contract 8% this yr, and the inflation fee has fallen beneath zero for the primary time in 4 years. Rising coronavirus infections might worsen the outlook.Economists predict the 1.35 trillion-euro pandemic bond-buying program shall be expanded once more this yr. Markets aren’t pricing one other 10 basis-point fee reduce till October 2021.Piet Christiansen, chief strategist at Danske Bank A/S in Copenhagen, estimates that extra liquidity will rise by one other 600 billion euros to 800 billion euros by the summer season of 2021.“We think this dovish view should and will prevail,” mentioned Frederik Ducrozet, chief world strategist at Banque Pictet & Cie in Geneva.For extra articles like this, please go to us at bloomberg.comSubscribe now to remain forward with probably the most trusted enterprise information supply.©2020 Bloomberg L.P.