Euro­pean cen­tral bank leaves rates un­changed

The Pak Banker - - Front Page -

FRANK­FURT: The Euro­pean Cen­tral Bank left in­ter­est rates un­changed Thurs­day, a de­ci­sion over­shad­owed by spec­u­la­tion about what mea­sures the bank might take to sta­bi­lize bond mar­kets and pre­vent the cri­sis in Ire­land from spread­ing to Por­tu­gal, Spain and be­yond.

Af­ter E.C.B. Pres­i­dent Jean-Claude Trichet hinted Tues­day that the bank could ex­pand its pur­chases of govern­ment bonds, in­vestors have been ex­pect­ing more de­tails. Op­ti­mism that the E.C.B. will use its fire­power to con­tain the cri­sis helped push up global stocks and the euro Wed­nes­day and again Thurs­day.

But mar­ket sen­ti­ment could pivot swiftly if Mr. Trichet, who was to hold a news con­fer­ence at 2:30 p.m. Frank­furt time, doesn't meet ex­pec­ta­tions.

"The mar­ket needs some sig­nal that this is some­thing the E.C.B. is pre­pared to do," said Nick Matthews, se­nior euro­pean econ­o­mist at RBS Global Bank­ing & Mar­kets in London, re­fer­ring to stepped-up bond pur­chases.

The E.C.B. be­gan buy­ing bonds on open mar­kets in May to halt a run on Greek debt. Pur­chases dwin­dled af­ter July, but lately the E.C.B. has stepped up the in­ter­ven­tion again. It bought debt worth €1.35 bil­lion, or $1.77 bil­lion, last week.

The pur­chases are still lower than in May and June, when the E.C.B. spent €59 bil­lion buy­ing debt on open mar­kets. The E.C.B. does not dis­close what Euro­pean govern­ment bonds it has bought, but traders re­ported in­creased pur­chases of Por­tuguese debt this week, ac­cord­ing to Reuters.

The E.C.B., which sets mon­e­tary pol­icy for the 16 coun­tries in the euro zone, has left its bench­mark in­ter­est rate at 1 per­cent since May 2009. Most an­a­lysts don't ex­pect rates to rise un­til well into 2011.

In­vestors were also look­ing for in­di­ca­tions from Mr. Trichet about the E. C. B.' s plans to with­draw the emer­gency fund­ing it has been pro­vid­ing to euro-area banks since the fi­nan­cial cri­sis be­gan. -PB News

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