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The ECB held the main policy rate at 1.50%

October 7, 2011

The ECB held the main refinancing rate at 1.50% today, in line with the consensus forecasts in the polls conducted by the financial press although about 20% of forecasters had expected an immediate cut of 25 or even 50bps today. Although the Governing Council took no action on rates, President Trichet stressed the “extreme importance” of the action to broaden its use of non-standard monetary policy measures. The ECB will provide longer term liquidity to banks by conducting a 12- and 13-month operation this year and will restart the covered bond purchase programme to the tune of €40bn.

During the press conference President Trichet said that decisions on rates and non-standard measures were taken “by consensus,” which signals that the Council was not unanimous. He disclosed that there was a lengthy discussion about the pros and cons of cutting rates today versus holding them steady. But in the end it seems that the Council did not yet think it could communicate justification for a rate cut based on the inflation outlook, and decided to withhold the additional policy accommodation that would have been provided at the margin.

In October the ECB will conduct a 12-month refinancing operation at fixed rate with full allotment, to be followed in December by a 13-month operation that will thus cover year-end of 2012. The rates of these operations will be fixed at the average rate of the main refinancing rate over the life of the respective LTROs. In addition, the ECB extended its commitment to meeting full demand for liquidity at the 1-week and 1-MRO operations for as long as necessary and at least through 10 June.


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