EZB pumpt extrem günstige Fördergelder in den Markt[en] 

In an attempt to pull the EU economy out of recession, the European Central Bank (ECB) recently injected 442 billion euros' worth of one-year funds into money markets, the bank's biggest-ever liquidity injection (EurActiv 25/06/09). 

The massive loan to eurozone banks at a flat rate of 1% marked the latest step in the ECB's efforts to get liquidity flowing and fend off the impact of the financial market crisis.

The loan represents about 70% of the ECB's outstanding liquidity operations and 5% of eurozone economic output, and analysts said the generous supply of funds should bring down money market rates. 

ECB President Jean-Claude Trichet gave no sign the ECB was planning to move rates from the current record low level soon, saying they remained "appropriate". However, he left the door open for further cuts if needed. 

Following a near-half trillion euro cash injection by the ECB last week, Trichet made a point of urging banks to pass on the benefits of ultra-cheap funding the ECB is pouring into the market. 

He also revealed the bank will begin its unorthodox programme of buying mortgage and public sector debt-backed bonds on July 6, targeting maturities of between three and 10 years. 

National central banks will make 92% of the purchases, and the ECB said they would be able to use their discretion in some cases on whether bonds were eligible or not. As a rule, bonds should be rated at least AA, although some bonds rated as low as BBB- will also be eligible. 

The purchase programme will kick in as economic data show increasing signs the worst of the economic tempest may now have passed, although the ECB appeared cautious. Trichet appeared to play down the outlook for the rest of this year, saying economic activity would remain "weak" and that "after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected by mid 2010." 

The comments pushed the euro down against the dollar, and bolstered analysts' expectations that euro-zone rates will stay on hold until the fourth quarter of 2010. "They (ECB) believe that the present policy setting is in line with their medium term objective, and they are pleased with the way last week's one-year repo operation worked," said Goldman Sachs economist Erik Nielsen. 

The ECB's rates remain the highest in Group of Seven economies. Earlier, Sweden's central bank surprised markets by cutting its interest rates by a further 25 basis points to 0.25 percent. 

‘What’s done is appropriate’ 

Trichet said the ECB was happy with the results of the ECB's 442 billion euro injection of 12-month funds last week, which have pushed money market rates down to record lows. 

The central bank currently planned no further rate cuts or additional unconventional stimulus. 

"We had not envisaged any new, other measure or operation. We consider that what we do now is appropriate," he told the news conference. 

Figures this week showed euro zone prices are now falling. Trichet, however, dismissed the likelihood of serious deflation and also brushed off the chance that inflation could quickly rise above the ECB's two percent ceiling. 

"We expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term," he said.

Trichet hailed last week's massive cash injection as a success but acknowledged the ECB needed to keep an eye on whether commercial banks passed on the cheaper financing to firms and consumers. 

"We are very closely observing what is going on, but we saw today no reason to change the concept," he said. "Our call to commercial banks in general (is) to be up to their responsibility, namely to ship to the real economy the extraordinary efforts which we are doing." 

But Europe's largest business lobby group said the ECB had failed to comprehend the dire credit situation facing firms, and urged the ECB to give more direct help to companies. 

The latest data is not encouraging. Overnight deposits at the ECB jumped to a new 5-1/2 month high on Thursday as banks continued to park much of the cash back at the ECB rather than lend it on. Lending growth to firms and households also slowed to a record low in May. 

ECB policymakers have already begun to talk tough on the issue. Bundesbank President Axel Weber recently raised the prospect that the ECB could bypass the banking channel if they do not pass on the cheaper funding. 

Trichet refused to be drawn on exactly how or when the bank would decide this was necessary. 

(EurActiv with Reuters.)