Brussels, 06/06/2012 (Agence Europe) - On Wednesday 6 June 2012, the European Central Bank (ECB) decided to leave the main interest rate unchanged at 1%, and will continue to provide quantitative easing for banks by providing with them at unlimited quantities of fixed interest loans from now until 15 January 2013.
At a meeting of the Governing Council, it was decided that interest rates for the main refinancing operations, the marginal loan facility and the deposit facility would remain unchanged at 1%, 1.75 % and 0.25%. ECB president Mario Draghi said that the Governing Council had not unanimously agreed on the decision because some members had wanted interest rates to be reduced.
In order to make life easier for European banks, the ECB decided to extend its special low-interest, unlimited size loans. Draghi said that one week and one month loans would be extended until 15 January 2013. The special three-monthly loan facility, due to expire at the end of the month, will continue until December 2012. In December 2011 and February 2012, the ECB injected a total of more than a trillion euro into the bank system, repayable after three years, but the beneficial effect of this has now worn off and the lending costs for vulnerable eurozone economies like Spain and Italy are again on the rise.
Growth forecasts down for 2013
There is an increased risk of a bear market in the economy, and Draghi said that economic growth in the eurozone was still weak, with uncertainty adversely affecting confidence, which translates into downside risks to the economy, but he said he expected the eurozone to gradually recover. He warned against the persistent danger of banks being reluctant to lend on to the real economy and the dangers of bank deleveraging. The monetary institute has slightly reduced its growth forecasts for the eurozone for 2013, but has not changed its inflation forecasts for 2012 and 2013 (compared with its previous forecasts, issued in March). Average annual real GDP growth is projected to be between -0.5% and 0.3% in 2012 and between 0.0% and 2.0% in 2013. The ECB says “eurozone HICP inflation is projected to average between 2.3% and 2.5% in 2012, headline inflation is expected to decline, averaging between 1.0% and 2.2% in 2013”.'
Spain. Mario Draghi discussed the situation in Spain and the idea that the European Stability Mechanism, which comes on stream next month, should provide direct aid to struggling banks (see separate article). (LC/transl.fl)