The European Central Bank (European Central Bank / ECB) yesterday announced to keep interest rates at 0.75 percent, its lowest level. The move was accompanied by a commitment to the Blue Continent monetary authorities to keep buying bonds to support the economy.
The decision of the central bank’s governing council had been predicted earlier by market players who are waiting for further action amid fears of bailout funds to Spain.
Once the details of ECB bond-buying program launched last month to ease market tensions, the ECB Governor Mario Draghi is projected to announce more measures against the debt crisis but urged European governments to act.
“After introducing the Outright program Monetary Transaction (OMT) last month, I predict there will be no new announcements from the ECB this week,” Goldman Sachs analysts said in a note quoted by AFP.
He added, before Goldman Sachs estimates the ECB will keep the policy rate and there will be no immediate change in policy proposals. Natixis economist Cedric Thellier revealed that further rate cuts will only be considered if the economic situation deteriorates.
“For the time being, the ECB governing council maintain the current level of interest rates,” he added.
According Thellier, further rate cuts are likely to be held in December, along with the recent announcement of the ECB regarding growth and inflation forecasts.
Looking ahead, there is a tendency to revise predictions of gross domestic product (GDP) for 2013 and 2014. At the same time experts predict that the central bank will announce a long-term operation of a new financing (long term refinancing operation / LTRO) before the end of the year.
Just to note, the central bank has launched a two-year LTRO by pumping large amounts of liquidity into the banking system to prevent a credit crunch. In the last month Draghi pledged to provide assistance to euro zone countries such as Spain by buying bonds to lower borrowing costs. This makes the tension in the market as investors thought that was the turning point of the crisis.
However, after a period of quiet, new volatility in emerging markets amid doubts whether Spain will apply for bailouts (bailouts) to the ECB. John Higgins at Capital Economics economist Ben May and expressed, since the ECB launched the policy of OMT, 10-year yields on government bonds have fallen sharply.
“However, three key questions about the effectiveness of the program remain unanswered and more importantly, we doubted the program, even if immediately implemented,” added Higgins and May.