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ECB keeps interest rate at 1 pct
Published in Saudi Press Agency on 02 - 07 - 2009


The European Central Bank left its
benchmark interest rate unchanged at 1 percent today,
preferring to wait and see if its «spectacular» infusion
of credit into the banking system will loosen lending to
consumers and businesses in the euro zone's struggling
economy, AP reported.
Bank President Jean-Claude Trichet said the ECB was
pleased by the demand for its record ¤442 billion ($623
billion) in 12-month credits to banks last week, but
wouldn't comment about what more it might do. The new loan
program comes on top of cutting the bank's main interest
rate from 4.25 percent to 1 percent since October.
The ECB sets interest rates for the 16 countries that use
the euro, a bloc of some 320 million people that accounts
for nearly 17 percent of the world's economic output.
«We were happy with the result of this liquidity supply.
It is of course emblematic of what we've been doing in
enhanced credit support,» Trichet said.
Trichet said the move should further strengthen banks'
access to cash and, help normalize money markets and extend
more credit. Yet he also urged banks to do their part by
passing the money onward to business and consumers.
«We trust what we have been doing in the non-conventional
measures we have taken and which have been very
spectacular,» he told reporters. «It also justifies our
call to commercial banks in general to be up to their
responsibilities _ mainly to ship to the real economy the
extraordinary measures we have been doing.»
The ECB also unveiled details of its previously announced
¤60 billion covered bond purchase program which it hopes
will also support more lending between banks. Covered bonds
are a relatively safe type of asset-backed security.
In a statement after the press conference Thursday, the
ECB said it hoped to initiate the program gradually,
beginning Monday, in a bid to spark more lending by banks
and make it easier to get credit.
The ECB said bonds on the primary and secondary market _
both new issues and previously owned _ could be purchased
but they will have be denominated in euros, having a
minimum double-A rating and minimum issue size of ¤500
million.
The decision on the bond purchase program will last
through June 30, 2010.
On the state of the euro zone economy, Trichet said recent
economic data indicated growth could remain weak for the
rest of this year, but should decline less strongly than in
the first quarter of 2009. He said after a phase of
stabilization, a gradual recovery with positive quarterly
growth rates is expected by mid-2010.
Trichet said the ECB's rate of 1 percent _ its lowest ever
_ was «appropriate» but reiterated that the current level
was not the lowest the bank could go if deemed necessary.
«The current rates remain appropriate taking into account
all the information and analysis that has become
available» since it met last month, he said, adding that
the «fall of annual inflation rates into negative
territory in June is in line with previous expectations and
reflects temporary effects.»


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