March 6, 2021

Citing Global Weakness, Central Banks Hold Interest Rates Steady

The E.C.B. joined the Bank of England and several Asian central banks in leaving benchmark interest rates unchanged Thursday, as they wait to see if the global economy deteriorates.

Nearly stagnant growth in the euro zone has raised questions whether the E.C.B. acted prematurely when it raised rates twice earlier this year, to 1.5 percent from 1 percent.

While warning that the euro zone economy was “subject to particularly high uncertainty and intensified downside risks,” Mr. Trichet defended the E.C.B.’s earlier policy moves as necessary to hold down prices.

“We think what we did was appropriate,” he said at a news conference, which also included a rare outburst against his critics. Asked about complaints about E.C.B. policy in the German Parliament, Mr. Trichet said, with obvious irritation, “We do our job, it’s not an easy job.”

Mr. Trichet normally suffers the financial press corps with remarkable equanimity. But, with less then two months to go before retirement, he seemed to vent frustration at the lack of appreciation the central bank has received during the sovereign debt crisis, when it has effectively held the euro zone together while political leaders appeared to dither.

“We have delivered price stability impeccably — impeccably!” he said loudly, reminding his German critics that inflation under the E.C.B. had been lower than when the Bundesbank, the German central bank, oversaw the Deutsche mark.

As Mr. Trichet nears the end of his term leading the E.C.B., the bank is on the front lines of the most acute crisis the euro has seen. Some European banks are struggling to borrow on the interbank market because of questions about their solvency; the E.C.B. is keeping them afloat by providing them with emergency low-cost loans. The E.C.B. is also buying Spanish and Italian bonds on the open market to stem pressure on their borrowing costs, which have threatened to reach ruinous levels.

Mr. Trichet gave no clear sign that the E.C.B. was poised to dial back rates soon, as some economists have urged. But he said the bank’s economists expected inflation to decline next year, suggesting there would be room to cut rates if growth deteriorated further.

The E.C.B. “has effectively left the door open to a change of stance should the situation demand it, but in our view this is far from imminent,” Janet Henry, an analyst at HSBC in London, wrote in an analysis. “It would take a significant recession” before the E.C.B. changes direction, she wrote.

Dirk Schumacher, an economist in Frankfurt for Goldman Sachs, wrote in a research note: “The E.C.B. is keeping its options open.”

The Bank of England decided to leave its benchmark interest rate unchanged at 0.5 percent to help the weakening British economy, amid concerns that Europe’s debt crisis might become more of a drag on growth.

The central banks of South Korea, Indonesia, the Philippines and Malaysia all kept rates unchanged at their policy meetings Thursday, as they waited to see how their economies would be affected by slower growth and debt concerns in Europe and the United States.

Mr. Trichet will cede the E.C.B. presidency to Mario Draghi, governor of the Bank of Italy, at the end of October. The news conference Thursday was Mr. Trichet’s last at E.C.B. headquarters in Frankfurt. Next month’s governing council meeting, Mr. Trichet’s last, will be in Berlin, where concern is growing that Greece will not be able to fulfill conditions for further aid, raising the possibility it will have to default on its debt and exit the euro. “Ladies and gentlemen, the situation is serious in Greece,” Wolfgang Schäuble, the German finance minister, told members of the Bundestag, or Parliament.

Asked about Greece, Mr. Trichet said only that he still assumed the country would fulfill conditions set by the International Monetary Fund and European Commission. He also sought to calm alarm about tensions in the interbank lending market, which have made it more difficult for some institutions to raise funds from their peers and made them reliant on emergency loans from the E.C.B. He acknowledged that interbank lending had tightened, but said banks were not borrowing nearly as much from the E.C.B. as they could.

“Liquidity is a false problem and I can prove it,” he said.

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