Jean-Claude Trichet, European Central Bank president, said today that the ECB has resumed bond purchases and will provide more liquidity to banks, as the slowing economy and the debt crisis has triggered market pressure on Italy and Spain.
“I wouldn’t be surprised that before the end of this teleconference you would see something on the market,” Trichet told a press conference in Frankfurt today after the ECB kept its benchmark interest rate unchanged at 1.5%. “We were not unanimous but with overwhelming majority with regards to the bond purchases.”
Since May 2010, the ECB has purchased €74bn of bonds issued by the Greek, Irish and Portuguese governments. However, the programme has been inactive since March.
Reuters reported that the ECB was in the secondary market buying bonds that were issued by Portugal and Ireland.
Bloomberg reports that Italian and Spanish 10-year bonds declined, pushing the yields to 6.15% and 6.25% respectively. Irish and Portuguese bond rose as people with knowledge of today’s transactions said the ECB bought those securities, pushing the yields on their debt to 10.06% and 10.62, respectively.
Private sector purchasing managers' index data issued this week showed that the Eurozone economy was close to a standstill.
However, Germany's economics ministry reported today that manufacturing orders were up 1.8% in June.
The ECB will lend euro-area banks as much money as they need for six months and extend its existing liquidity measures through the end of the year, Jean-Claude Trichet said.
Marie Diron, senior economic
adviser to the Ernst & Young Eurozone Forecast (EEF) comments on today's ECB
interest rate decision:“The ECB seems
largely undeterred by recent developments and keeps pointing to further rate
increases in interest rates. Unless developments turn much more negative, the
ECB has signalled that it will likely raise interest rates in October. We think
that this tightening of monetary policy is unhelpful, at best. It will add to
the burden of peripheral countries and dampen fragile growth in the core
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