ECB holds interest rates at Slovenia meeting

, October 4, 2012, 0 Comments

The European Central Bank (ECB) has decided to keep its main refinancing rate unchanged in a bid to calm markets. But the focus really has been on when exactly its bond-buying program will get off the ground.

The European Central Bank (ECB) on Thursday announced it would keep its benchmark interest rates on hold amid a continuing climate of economic uncertainty on the continent.

Meeting in the Slovenian capital, Ljubljana, the ECB Council said there would be no change right now to its historically low refinancing rate standing at 0.75 percent. This was in line with most analysts’ expectations. They had argued that the ECB could cut its rates even further, but only after the start of its new bond-buying program aimed to bring down borrowing costs for debt-stricken eurozone nations.

Spain has been widely seen as the primary candidate to apply for such aid, but has so far resisted making the move.

Bleak growth outlook

Without any specific mention of Spain, ECB President Mario Draghi reiterated the bank’s willingness to buy bonds of euro area countries that would commit themselves to fiscal rehabilitation schemes.

“Outright monetary transactions will enable us to provide a fully effective backstop to avoid disruptive scenarios with potentially severe challenges for price stability in the eurozone,” Draghi told reporters.

At the same time, Draghi warned Greece could not be granted more time to repay the share of its public debt held by the European Central Bank. He said accepting a longer repayment schedule for Greek government bonds in ECB hands “would qualify as monetary financing,” which was banned by European Union treaties.

The ECB Chief predicted growth in the 17-member euro area to remain rather weak in the near future. But the bank did not consider a rate cut to have a huge impact at the moment. Despite the low refinancing yield, private households and companies had still been facing problems in securing loans, whereas inter-bank lending had improved tangibly.

Source: Deutsche Welle | www.dw.de