ECB keeps same rate since bond purchase
By Geir Moulson |
June 11, 2010, Friday
|
Print Edition
Print Edition
THE European Central Bank left its key interest rate unchanged at 1 percent yesterday after its governing council met for the first time since last month's emergency decision to buy government bonds to ease the debt crisis.
With markets still jittery - the euro has hit a series of four-year lows to trade below US$1.19 this week - the move was widely expected. The bank has not adjusted its rate since May 2009.
Investors will now be looking for what President Jean-Claude Trichet has to say about the program to buy government bonds to support and boost confidence in the European government debt market - specifically, whether it will continue and for how long.
Depending on how they are done, bond purchases by a central bank can increase the supply of money in the economy, which can both stimulate growth and cause inflation, undercutting the future value of the euro.
Trichet has said the bank's bond move would not stoke inflation because it "sterilizes" its interventions - that is, it offsets the impact on money supply by other means. So-called quantitative easing, which the Bank of England is doing, aims to increase the amount of money in an economy to make credit more available.
The program "should not be confused with quantitative easing. In simple words: We are not printing money," according to Trichet.
With markets still jittery - the euro has hit a series of four-year lows to trade below US$1.19 this week - the move was widely expected. The bank has not adjusted its rate since May 2009.
Investors will now be looking for what President Jean-Claude Trichet has to say about the program to buy government bonds to support and boost confidence in the European government debt market - specifically, whether it will continue and for how long.
Depending on how they are done, bond purchases by a central bank can increase the supply of money in the economy, which can both stimulate growth and cause inflation, undercutting the future value of the euro.
Trichet has said the bank's bond move would not stoke inflation because it "sterilizes" its interventions - that is, it offsets the impact on money supply by other means. So-called quantitative easing, which the Bank of England is doing, aims to increase the amount of money in an economy to make credit more available.
The program "should not be confused with quantitative easing. In simple words: We are not printing money," according to Trichet.
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