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ECB Maintains Interest Rate At 0.05%

James Boston
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ECB Maintains Interest Rate At 0.05%

In the final meeting of what has been a very troubling year for the Eurozone economy, the European Central Bank’s (ECB) Governing Council announced no change to the single currency’s key interest rates. Once again the Refinance Rate remains at 0.05% while the Marginal Lending Facility stays at 0.30% and the Deposit Facility is unchanged at -0.20%. The President of the ECB, Mario Draghi, is scheduled to give a press conference later this afternoon, there is now significant speculation that some form of quantitative easing will be announced for the Eurozone, although the exact form of this is still up for debate.

The ECB’s stated goal is to pump up to €1 Trillion euro into the economy through balance sheet expansion operations such as asset backed purchases, quantitative easing and targeted long term refinance operations (TLTRO). The latter of these has so far failed to attract much interest with a disappointing €80Bn take up from the €400Bn on offer, the second and final offer of phase I of this initiative will take place next week but forecasts are for another weak take up. Asset back purchases have demonstrated some success but in relatively small amounts so far, this operation is largely considered a testing of the water by the ECB as it prepares for full scale quantitative easing.

A quantitative easing program, if announce, will be fraught with difficulty for the ECB, not least of which is the vehement German opposition to such a scheme. Germany has made no secret of it’s opposition to quantitative easing and has alluded to a day in court should the ECB attempt to proceed down the government bond purchase route. On the surface however this doesn’t appear to preclude a ramping up of corporate bond purchases by the ECB, this could potentially extend to the purchase of debt instruments of quasi governmental companies such as semi privatised utilities, this would be a watered down version of quantitative easing but a step in the right direction.

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