The E.C.B.’s restraint came in contrast to the action of the Bank of England, which announced another round of bond buying to support the slowing British economy. The pound fell against all major currencies after the announcement; the euro rose against the dollar.
As a slump in German factory orders provided the latest sign of a looming recession, the E.C.B. left its benchmark rate unchanged, at 1.5 percent. The Bank of England also left its main rate unchanged, at 0.5 percent.
During his last news conference as E.C.B. president, Jean-Claude Trichet said that members of the central bank’s governing council had discussed a rate cut before concluding “by consensus” that inflation in the euro area — at 3 percent — was still too high. The statement, and a subdued assessment of the euro zone economy, suggested the bank will be open to cutting rates in coming months, as many analysts expect.
Mr. Trichet said the central bank expected “very moderate” growth ahead in “an environment of particularly high uncertainty.”
Janet Henry, chief European economist at HSBC, wrote in a note to clients that the E.C.B. “has clearly left the door open to a cut, possibly as soon as November.” She said that Mr. Trichet may have been reluctant to send any stronger signals on E.C.B. intentions that might constrain his successor, Mario Draghi, now governor of the bank of Italy. Mr. Draghi will take office Nov. 1.
Mr. Draghi brings a similar outlook and background as Mr. Trichet and is not expected to radically alter monetary policy. But he may find it hard to move boldly at the beginning of his term, given that he may feel it necessary to establish his anti-inflation credentials. He has kept an extraordinarily low profile in the final months of Mr. Trichet’s tenure and his intentions are largely a mystery.
The E.C.B. did respond to signs that banks are reluctant to lend to each other because of fears about their exposure to shaky government debt.
Those fears were intensified by the woes of the French-Belgian bank Dexia, which is seeking its second taxpayer-financed bailout in three years and said Thursday that it was close to selling its Luxembourg unit.
The central bank will spend €40 billion, or $53.6 billion, in the coming year buying so-called covered bonds, a form of debt secured by payments received on assets like packages of loans.
Covered bonds are one of the main ways that European banks raise money. The E.C.B. also bought covered bonds in 2009 to alleviate the bank financing squeeze that followed the collapse of the U.S. investment firm Lehman Brothers in 2008.
The E.C.B. measure, however, was dwarfed by the Bank of England’s plans to widen its so-called quantitative easing program to £275 billion from £200 billion.
“Vulnerabilities associated with the indebtedness of some euro area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally,” the Bank of England’s governor, Mervyn A. King, wrote in a letter to the British Treasury explaining the bank’s decision.
The E.C.B. does not have the power to save ailing banks like Dexia or address deeper problems in the banking system, officials insist, caused by banks’ exposure to sovereign debt and reserves that are too thin to absorb potential losses. That task belongs to governments.
Angela Merkel, the chancellor of Germany, suggested Thursday that Europe was moving closer to a coordinated effort to bolster European banks and address the longer-term problems.
While cautioning that more expert advice was needed, she said, “If the conditions are there we shouldn’t hesitate.” Mrs. Merkel appeared at a news conference in Berlin that also included Christine Lagarde, president of the International Monetary Fund, and Robert B. Zoellick, president of the World Bank.
Her comments were similar to what she said Wednesday during a visit to Brussels and in line with remarks made Thursday by José Manuel Barroso, president of the European Commission, the executive arm of the European Union.
Article source: http://feeds.nytimes.com/click.phdo?i=48b47cb9c1bb2f912668917d70f11409
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