Brussels, 04/06/2009 (Agence Europe) - On Thursday 4 June, the European Central Bank decided to maintain the status quo on euro area interest rates and confirmed that it intended to launch its plan to purchase €60 billion of covered bonds. The main refinancing operations interest rate remains, then, at 1%, with the marginal lending facility and deposit facility rates at 1.75% and 0.25% respectively. Following the meeting of the Board of Governors, the Bank President said that “the current rates are appropriate”, but did not rule out further reductions. The Board did not decide that the current rates level would be the lowest, Jean-Claude Trichet told press, re-iterating a position expressed one month ago.
After a particularly bad first quarter, the slowdown in growth should be less marked in the rest of the year, Trichet said, presenting the latest ECB forecasts (reviewed downwards from March). According to these figures, the euro area GDP is expected to fall by between 5.1% and 4.1% in 2009 and be somewhere between -1% and +0.4% in 2010. The expected inflation rate fall will continue over the next few months, before rising again towards the end of the year, Trichet added. The ECB says that price rises in the euro area will be between 0.1% and 0.5% in 2009 (slightly down on the March forecast) and between 0.6% and 1.4% in 2010 (unchanged from March).
The Board of Governors on Thursday set out the technical arrangements for the purchase of bonds that it announced after its meeting on 7 May 2009 (see EUROPE 9897). The purchases, amounting to €60 billion, will be distributed across the euro area and will be carried out by means of direct purchases in both primary and secondary markets. They will begin in July 2010 at the latest. To be eligible for purchase under the programme, covered bonds must have been given a minimum AA or equivalent rating, comply with the criteria set out on undertakings for collective investment in transferable securities (UCITs) and be eligible for use as collateral for Eurosystem credit operations. Issue volumes should be at least €500 million. Without wishing to say if there had been discussion of figures over €60 million or involving other types of bonds, Trichet gave assurances that no further plan had been put in place in advance. The Board of Governors had not taken “any decision at this stage” (apart from the €60 billion decision), “The Board will consider what the future brings, and I have no comments or forecasts to make about this”.
He also played down the criticism of the German Chancellor, who had expressed concern over the consequences of “non-conventional” measures taken recently by the major central banks across the world (see EUROPE 9913). During a telephone conversation on Wednesday, Angela Merkel told him that she fully respected the independence of the ECB, and that what it did independently she supported fully. It was perfectly clear that an appropriate exit strategy was required, Trichet said, repeating that when the economic environment had improved, the ECB would ensure that measures taken were swiftly lifted and the liquidity absorbed. (A.B./transl.rt)