The European Central Bank held its record-low interest rates unchanged at its regular monthly policy meeting on Thursday, amid fierce street clashes between anti-austerity demonstrators and police outside the Italian venue.
As widely expected, the ECB said in a statement that it was holding its main "refinancing" rate steady at 0.05 percent, after cutting it last month.
The bank also held its other two main interests rates -- the deposit and marginal lending rates -- at minus 0.20 percent and plus 0.30 percent respectively.
ECB watchers had not expected any new policy moves this month after the central bank surprised the markets with rate cuts and other measures last month.
But observers said they were listening out for details of the ECB's contested plans to buy up asset-backed securities and covered bonds as a way of injecting cash into the moribund eurozone economy.
- Clashes with police -
Outside the meeting, held in the famous Capodimonte museum in Naples instead of the ECB's usual venue in Frankfurt, thousands of anti-austerity protestors clashed with police, with water cannon and tear gas used by the security forces to try and disperse the demonstrations.
"Misery, poverty, unemployment, speculation, free us from the ECB," read banners brandished by many of the estimated 4,000 protestors, who clashed with some 2,000 police and security officers.
As police helicopters circled above the venue, the protestors carried placards with caricatures of German Chancellor Angela Merkel, a champion of fiscal discipline in the eurozone, and the slogan "jatevenne" which is Neopolitan dialect for "go away".
Street protests have repeatedly rocked eurozone countries hardest hit by the sovereign debt and economic crisis, in which the "troika" of International Monetary Fund, EU and ECB has demanded tough structural reforms and painful budgets cuts from stricken economies.
ECB president Mario Draghi, an Italian who has earned the nickname "super Mario" for his negotiating and communication skills, was scheduled to explain the reasoning behind the decision at his traditional post-meeting news conference.
- Details of ABS programme -
Analysts said they would listen out for details of the ECB's planned ABS purchase programme.
"We expect pretty strong hints of forthcoming quantitative easing," said Jessica Hinds of Capital Economics.
Draghi stated firmly last month that interest rates had finally reached a trough.
"But with the economic outlook deteriorating further since then and inflation dropping to just 0.3 percent, the ECB is under pressure to provide more policy support," the expert said.
Regarding the ABS purchase programme, "we expect purchases to be relatively limited," Hinds said.
Asset-backed securities are bundles of individual loans such as mortgages, auto credit and credit-card debt which are sold on to investors, allowing banks to share the risk of default and freeing up funds to offer more credit.
The ECB believes that the market for such securities -- an important source of financing for banks to keep lending to small and medium-sized enterprises -- has effectively dried up since the financial crisis.
And the ECB hopes that by buying them on a large scale, it can help revive the market and free up some of the credit channels which have seized up during the long years of crisis.
The problem is that it was precisely complex financial derivatives such as ABS which are seen as the root of the sub-prime crisis in the United States in 2008, leading many observers, particularly in Germany, to harbour deep reservations about them.
Another of the ECB's liquidity measures, the so-called Targeted Long-Term Refinancing Operation (TLTRO) under which the central bank made ultra-cheap loans available to banks to lend on to businesses, has disappointed.
Hinds said Draghi would probably voice only modest disappointment at the low uptake at the first TLTRO auction and state that a second such operation in December would likely attract more support.
"Nonetheless, it seems clear that existing policies will neither achieve the ECB's targeted one-trillion-euro increase in the size of its balance sheet nor generate an economic recovery strong enough to remove the risk of deflation," she said.
"Accordingly, we expect the ECB to suggest that larger outright asset purchases will be forthcoming despite the Bundesbank's objections, although we doubt that it will act before December," the analyst concluded.
The European Central Bank held its record-low interest rates unchanged at its regular monthly policy meeting on Thursday, amid fierce street clashes between anti-austerity demonstrators and police outside the Italian venue.
As widely expected, the ECB said in a statement that it was holding its main “refinancing” rate steady at 0.05 percent, after cutting it last month.
The bank also held its other two main interests rates — the deposit and marginal lending rates — at minus 0.20 percent and plus 0.30 percent respectively.
ECB watchers had not expected any new policy moves this month after the central bank surprised the markets with rate cuts and other measures last month.
But observers said they were listening out for details of the ECB’s contested plans to buy up asset-backed securities and covered bonds as a way of injecting cash into the moribund eurozone economy.
– Clashes with police –
Outside the meeting, held in the famous Capodimonte museum in Naples instead of the ECB’s usual venue in Frankfurt, thousands of anti-austerity protestors clashed with police, with water cannon and tear gas used by the security forces to try and disperse the demonstrations.
“Misery, poverty, unemployment, speculation, free us from the ECB,” read banners brandished by many of the estimated 4,000 protestors, who clashed with some 2,000 police and security officers.
As police helicopters circled above the venue, the protestors carried placards with caricatures of German Chancellor Angela Merkel, a champion of fiscal discipline in the eurozone, and the slogan “jatevenne” which is Neopolitan dialect for “go away”.
Street protests have repeatedly rocked eurozone countries hardest hit by the sovereign debt and economic crisis, in which the “troika” of International Monetary Fund, EU and ECB has demanded tough structural reforms and painful budgets cuts from stricken economies.
ECB president Mario Draghi, an Italian who has earned the nickname “super Mario” for his negotiating and communication skills, was scheduled to explain the reasoning behind the decision at his traditional post-meeting news conference.
– Details of ABS programme –
Analysts said they would listen out for details of the ECB’s planned ABS purchase programme.
“We expect pretty strong hints of forthcoming quantitative easing,” said Jessica Hinds of Capital Economics.
Draghi stated firmly last month that interest rates had finally reached a trough.
“But with the economic outlook deteriorating further since then and inflation dropping to just 0.3 percent, the ECB is under pressure to provide more policy support,” the expert said.
Regarding the ABS purchase programme, “we expect purchases to be relatively limited,” Hinds said.
Asset-backed securities are bundles of individual loans such as mortgages, auto credit and credit-card debt which are sold on to investors, allowing banks to share the risk of default and freeing up funds to offer more credit.
The ECB believes that the market for such securities — an important source of financing for banks to keep lending to small and medium-sized enterprises — has effectively dried up since the financial crisis.
And the ECB hopes that by buying them on a large scale, it can help revive the market and free up some of the credit channels which have seized up during the long years of crisis.
The problem is that it was precisely complex financial derivatives such as ABS which are seen as the root of the sub-prime crisis in the United States in 2008, leading many observers, particularly in Germany, to harbour deep reservations about them.
Another of the ECB’s liquidity measures, the so-called Targeted Long-Term Refinancing Operation (TLTRO) under which the central bank made ultra-cheap loans available to banks to lend on to businesses, has disappointed.
Hinds said Draghi would probably voice only modest disappointment at the low uptake at the first TLTRO auction and state that a second such operation in December would likely attract more support.
“Nonetheless, it seems clear that existing policies will neither achieve the ECB’s targeted one-trillion-euro increase in the size of its balance sheet nor generate an economic recovery strong enough to remove the risk of deflation,” she said.
“Accordingly, we expect the ECB to suggest that larger outright asset purchases will be forthcoming despite the Bundesbank’s objections, although we doubt that it will act before December,” the analyst concluded.
