Fundamental Updates \Nick Nasad \ 11:49 AM EST \ March 4th, 2010
The ECB is in the middle of a tough balancing act as it is attempting to lay the groundwork for mopping up extra liquidity in the banking system while still maintaining favorable lending conditions and dealing with the fallout from the Greece debt situation.
Some Steps to Tighten Monetary Policy
“The Eurosystem continues to provide liquidity support to the banking system of the euro area at very favorable conditions,” Trichet said. It will still lend as much money as needed through its seven-day operations, and its one-month operation, which are lent at the benchmark rate till at least October an extension of stimulus measures meant to cement the recovery. The ECB kept that benchmark rate at 1% in today’s meeting as was widely expected. But, the ECB will tighten the terms of its three-month market operations by returning to the pre-crisis practice of offering those funds at a variable rate.
The ECB also tightened this months final six-month tender, saying the rate paid will be indexed to the average of the ECB’s main rate over the maturity of the operation meaning banks would pay more than the current 1% if the ECB raises its benchmark. The implication is that despite the problems in Greece, the ECB is determined to move to tighten monetary policy, if at a somewhat slower pace than before.
No on IMF Financial Assistance for Greece
During this phase of gradual monetary tightening, the ECB is wrangling with the problem of Greece and its sovereign debt. What the ECB would like to convince markets is that they can force Greece to put its fiscal house in order – through spending cuts and increases in taxes – without the need for the ECB to give the country financial assistance. Trichet said that it would be inappropriate for the IMF to give help to Greece as well. Greece’s Prime Minister said the IMF remained the country’s option of last resort if the EU didn’t “rise to the occasion” to offer financial assistance.
German Chancellor Angela Merkel meanwhile snubbed the Greek Prime Minister’s aid request after he announced his third package of deficit cuts this year.
Also in Greece news, the government announced that its 10-year bond was oversubscribed by investors, as it attracted around 14.5 billion in bids. The government aimed to raise 5 billion from the offering and could provide a major relief for the government and increase the likelihood that it can get through the year without needing to draw on financial help from the EU or the IMF.
ECB Holds Rates Steady, But Makes Moves to Tighten Monetary Policy
Fundamental Updates \ Nick Nasad \ 11:49 AM EST \ March 4th, 2010The ECB is in the middle of a tough balancing act as it is attempting to lay the groundwork for mopping up extra liquidity in the banking system while still maintaining favorable lending conditions and dealing with the fallout from the Greece debt situation.
Some Steps to Tighten Monetary Policy
“The Eurosystem continues to provide liquidity support to the banking system of the euro area at very favorable conditions,” Trichet said. It will still lend as much money as needed through its seven-day operations, and its one-month operation, which are lent at the benchmark rate till at least October an extension of stimulus measures meant to cement the recovery. The ECB kept that benchmark rate at 1% in today’s meeting as was widely expected. But, the ECB will tighten the terms of its three-month market operations by returning to the pre-crisis practice of offering those funds at a variable rate.
The ECB also tightened this months final six-month tender, saying the rate paid will be indexed to the average of the ECB’s main rate over the maturity of the operation meaning banks would pay more than the current 1% if the ECB raises its benchmark. The implication is that despite the problems in Greece, the ECB is determined to move to tighten monetary policy, if at a somewhat slower pace than before.
No on IMF Financial Assistance for Greece
During this phase of gradual monetary tightening, the ECB is wrangling with the problem of Greece and its sovereign debt. What the ECB would like to convince markets is that they can force Greece to put its fiscal house in order – through spending cuts and increases in taxes – without the need for the ECB to give the country financial assistance. Trichet said that it would be inappropriate for the IMF to give help to Greece as well. Greece’s Prime Minister said the IMF remained the country’s option of last resort if the EU didn’t “rise to the occasion” to offer financial assistance.
German Chancellor Angela Merkel meanwhile snubbed the Greek Prime Minister’s aid request after he announced his third package of deficit cuts this year.
Also in Greece news, the government announced that its 10-year bond was oversubscribed by investors, as it attracted around 14.5 billion in bids. The government aimed to raise 5 billion from the offering and could provide a major relief for the government and increase the likelihood that it can get through the year without needing to draw on financial help from the EU or the IMF.