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Jean-Claude Trichet, European Central Bank president, speaking at a press conference in Frankfurt, Aug 04, 2011
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
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
Eurozone countries. “The ad-hoc provision of extra liquidity announced
today is helpful in the short term but it is not enough to stem the current
crisis. As expected, the ECB has rejected to announce a step up in its bond
purchase programme to help relieve tensions on the Spanish and Italian bond
markets. Within a few months, the EFSF will be able to take over from the ECB
and purchase bonds, but Spain and Italy may not have that much time. Trichet was
careful to highlight that the bond purchase programme was active, surely to
leave the door open to purchases in the future. But by being so reluctant to
embrace this policy the ECB is undermining its effectiveness since financial
markets cannot rely on the ECB acting as a lender of last resort to governments.
“The ECB continues to qualify risks to the growth
outlook as balanced. This strikes us as a very optimistic assessment. True,
there are some upside risks, in particular related to companies’ favourable cash
positions that could lead to faster investment than we currently envisage. But
these upside risks are dwarfed by major downside risks, the probability of which
has significantly increased in the past few weeks. Should tensions on Spanish
and Italian bond markets escalate further, it is far from certain that an
adequate policy response would come quickly enough to prevent the Eurozone from
being engulfed in a crisis that could push the economy back into deep
No Way to 'Divorce' From Euro: Analyst: "The euro was a marriage but no one told us exactly what we'd actually end up in and what were the divorce proceedings," Tim Skeet, managing director at RBS told CNBC. "The answer is that no one's thought that through and I think we have to believe in this marriage," he added: