No changes in eurozone interest rates are expected this week as the European Central Bank (ECB) assesses the impact of recent moves to flood banks with cash to avert a credit crunch, analysts say.
At the same time, ECB president Mario Draghi could be running into increasing resistance from Germany’s traditionally orthodox Bundesbank over many of the unconventional policy measures he has initiated since taking office in November.
The ECB’s governing council, meeting on Thursday 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 (US$699 billion) into euro area banks last week, analysts said.
“The ECB looks firmly poised to stay put with regard to interest rates and further liquidity measures,” Commerzbank economist Michael Schubert said.
Last week, the ECB threw open its liquidity floodgates for the second time in two months, flooding the banking system with cheap funds to avert a dangerous credit squeeze.
That brings the total amount to more than 1 trillion euros that banks have borrowed from the ECB at exceptionally low interest rates since December.
The ECB hopes banks will lend the money to households and businesses and also use it to bring down government borrowing costs.
Draghi has been busy seeking to put out the crisis fires on other fronts, too, in the four short months of his reign so far.
In December, the ECB cut rates to bring its benchmark lending rate back to its previous historic low of 1 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 forgo 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.
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