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WASHINGTON/FRANKFURT (Reuters) - European Central Bank policymakers are increasingly leaning toward rewarding banks for lending to households and businesses but are mostly skeptical about giving lenders a reprieve from a charge on their idle cash, four sources told Reuters.

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FILE PHOTO: Reflection of the sign of the European central Bank (ECB) is seen ahead of the news conference on the outcome of the Governing Council meeting, at the ECB headquarters in Frankfurt, Germany, March 7, 2019. REUTERS/Kai Pfaffenbach/File Photo

The sources said rate-setters, who met in Frankfurt on Wednesday, were now open to offering a zero or even negative interest rate to banks that pass through into the economy the cash they borrow under the ECB’s third Targeted Long-Term Refinancing Operation (TLTRO III), due to start in September.

ECB President Mario Draghi said on Wednesday that policymakers did not discuss the terms of the upcoming TLTRO at their meeting and would decide on the matter when they have more information about the state of the economy and bank lending, flagging the bank’s June gathering as a possible date.

With the growth outlook fading faster than feared, even hawkish policymakers have given up pricing the loans at the private market rate. Some are even discussing offering the TLTROs at minus 0.4 percent, which is currently the ECB’s deposit rate, the sources said.

Draghi also said policymakers were considering the need to mitigate the impact of the ECB’s negative deposit rate on lenders’ profits, a coded reference to a tiered system where some excess reserves are exempted from that charge.

But this option, which is being studied by the ECB’s staff and has already been adopted by countries such as...

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