European central bank leaves rates unchanged
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