ECB Holds Rates Steady
The European Central Bank held its key interest rates steady, as expected on Thursday, leaving Eurozone borrowing costs at historic low levels after cutting rates twice in recent months.
The ECB's policy-setting governing council voted to leave the rate for its main refinancing operations unchanged at 1.0 percent at its regular monthly meeting here.
Earlier in London, the Bank of England also held its rates steady at a record low of 0.5 percent and said it would inject another £50 billion (60 billion euros, $80 billion) into Britain's weak economy.
No changes in ECB rates had been expected this week following the recent rate cuts and the unprecedented amounts of liquidity pumped into the banking system to avert a possible credit crunch in the Eurozone economy.
Analysts and central bank watchers said the guardian of the euro would want to see how those measures have played out before taking further action, especially with a second huge auction of liquidity scheduled for the end of February and the ECB staff projections for inflation and growth set to be published in March.
Bank president Mario Draghi is scheduled to discuss the reasoning behind the latest decision at the regular monthly news conference.
Since Draghi took office 100 days ago, the central bank has brought Eurozone borrowing costs back down to their previous historical low of 1.0 percent.
It has also offered banks in the region an unlimited pool of liquidity by loosening collateral rules, cutting the minimum reserve ratio and launching new three-year loans at super-cheap rates.
Draghi insists the ECB measures are working.
At the World Economic Forum in Davos, Switzerland, last month, he said the Eurozone had made "outstanding" progress towards resolving the debt crisis.
But in a sign of a possible credit crunch, the ECB found in its latest regular quarterly bank lending survey that banks have tightened credit conditions for both households and businesses even as demand for loans is falling.
With no policy changes announced, analysts said attention at the meeting will focus on the possibility of the ECB writing down parts of its holdings of Greek bonds.
Greece's private creditors are being asked to write off about half of the 200 billion euros' worth of government debt they hold to help cut the country's total debt burden down to a sustainable level.
The ECB has come under pressure to take losses on the Greek government bonds it holds as the restructuring by private creditors is unlikely to bring down Greece's debt to the target of 120 percent of GDP in 2020 from 160 percent at present.
On Wednesday, the Wall Street Journal said the ECB had agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome.
The ECB bought the bonds beginning in May 2010 in an effort to push down borrowing prices for Athens. The effort failed and Greece has in effect been locked out of the bond markets ever since.
Capital Economics' chief European economist Jonathan Loynes said he was doubtful that the ECB "will be prepared to go very far. The overall message is likely to stay the same -- while the ECB is happy to keep supporting the region's banks, governments should sort their own problems out," he said.
Source: Agence France Presse
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