FRANKFURT, March 8 (BSS/AFP) - No changes in eurozone interest rates are expected Thursday as the European Central Bank assesses whether recent moves to flood banks with cash have averted a credit crunch, analysts said.
The ECB's governing council, meeting for its regular monthly
policy-setting meeting, is not expected to announce any changes
to interest rates or any other measures after it pumped a record
529.5 billion euros ($695 billion) into euro area banks last
week, analysts said.
"Following the huge liquidity injections of the past two
months, the ECB is likely to take a step back and wait to see
whether credit growth picks up," said ING Belgium economist
"Over the past week, the ECB has again fulfilled its role as
the eurozone's fire brigade. Now it's time to sit back and take
break," Brzeski said.
UniCredit economist Marco Valli agreed.
"We expect the ECB to leave its (key) rate at 1.0 percent,
with no announcement of further unconventional measures," he
Last week, the ECB threw open its liquidity floodgates for
the second time in two months, flooding the banking system with
cheap funds in order to avert a dangerous credit squeeze.
That brings to more than 1.0 trillion euros the total amount
banks have borrowed from the ECB at exceptionally low interest
rates since December.
The ECB hopes the banks will lend the money to households and
businesses and also use it to bring down government borrowing
The measure does indeed seem to be working, even if analysts
agree it will not be enough on its own to solve the eurozone's
crippling debt crisis and will merely buy time.
The so-called long-term refinancing operation or LTRO "has
been successful in alleviating liquidity pressures for banks,
bolstering investor confidence and lowering bond yields notably
in Italy and Spain," said Marie Diron, senior economic adviser to
the Ernst & Young Eurozone Forecast.
"It is still too early to tell, but it looks as if the LTRO
has avoided a serious credit crunch that would have plunged the
eurozone into a deep recession," she said.
Nevertheless, "while the LTRO has brought huge relief, it
will probably not be enough to get the eurozone growing again in
the short term," she cautioned.
Since taking over at the ECB's helm in November, president
Mario Draghi has been busy seeking to put out the crisis fires on
a number of fronts.
In December, the ECB cut rates to bring its benchmark lending
rate back to its previous historic low of 1.0 percent,
effectively reversing last year's two earlier rate hikes.
It has eased the rules on bank collateral and cut banks'
minimum reserve ratio, and after long resisting calls to take a
haircut or writedown its holdings of Greek bonds, it did finally
agree to forego profits on them.
"After all that, we doubt that the ECB will announce any
additional policy measures this month," said Jennifer McKeown,
senior European economist at Capital Economics.
The ECB will, however, publish its latest updated growth and
inflation forecasts for the 17 countries that share the euro, and
Berenberg Bank senior economist Christian Schulz said he was
expecting the bank to cut its growth outlook, "but is unlikely to
cut rates further."
By contrast, Natixis economist Cedric Thellier suggested
Draghi "might leave an open door for such a possibility if non-
standard measures fail to revive credit to the real economy."
On another front, the influential German daily Frankfurter
Allgemeine Zeitung, said it had obtained a copy of a letter from
Bundesbank chief Jens Weidmann in which he urged Draghi to
rethink the decision to ease collateral rules and warned about
the wider risks being stored up in the financial system.
Like every other eurozone country, Germany may only carry a
single vote on the ECB's governing council but given the
country's clout as Europe's biggest economy and the EU's
effective paymaster, its support is vital for Draghi.
The two men's predecessors, Jean-Claude Trichet and Axel
Weber, similarly clashed over a controversial bond-buying
programme, leading to Weber's abrupt resignation as Bundesbank