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European Central Bank leaves refinancing rates unchanged

04 June 2009 14:16 (UTC +04:00)

Baku-APA-Economics. The European Central Bank kept its main interest rate unchanged at a historic low of 1 percent on Thursday amid signs of a deeper than anticipated recession, AFP reported.
The ECB’s decision to keep the refinancing rate on hold for the 16 nations that share the euro was in line with expectations after the bank indicated last month it did not intend to make further cuts in the near term.
Economists were looking to an ECB news conference later Thursday for possible comments from President Jean-Claude Trichet on how to give the sagging economy an additional push by putting more money into the banking system through purchases of covered bonds.
Last month, the ECB said it would begin to buy around euro60 billion ($85 billion) worth of euro-denominated covered bonds â€” a low-risk type of asset-backed securities.
The hope is that the policy may raise prices of assets on bank balance sheets, help keep prices from falling for too long or too far, and well as giving the banking system more funds to lend to homeowners and businesses.
Trichet said last month that the bank had made no decision on buying other kinds of assets and that more details on the covered bond purchases would be offered Thursday.
The ECB has cut its benchmark interest rate by 3.25 percentage points since October. The most recent quarter-point cut came in May.
The ECB has been criticized by some analysts for not being as aggressive as either the U.S. Federal Reserve or the Bank of England, both in cutting interest rates and in promoting unconventional measure such as bond purchases to boost the money supply.
However, it has been very quick during the financial crisis to increase the availability of credit and broaden the kinds of collateral it will take from banks that want to borrow.
Shortly before the ECB decision, the Bank of England also kept its key rate unchanged at 0.5 percent and maintained its policy of increasing the money supply to the economy.
Most analysts think it inevitable that the ECB will concede the euro-zone recession this year will be deeper than previously anticipated. Recent figures showed that the euro zone contracted by a massive 2.5 percent in the first quarter alone from the previous three month period. The ECB has predicted that gross domestic product in 2009 would fall between 2.2 and 3.2 percent for the entire year.