ECB to put unlimited funds into banks
Friday June 11 2010
THE European Central Bank will provide unlimited liquidity to banks until the end of this year and press on with its policy of buying euro government bonds -- because eurozone credit markets are still not functioning properly.
"It's appropriate to continue to do what we've decided" on purchases of sovereign and corporate bonds, ECB president Jean-Claude Trichet said in Frankfurt yesterday.
"We have a money market which is not functioning perfectly."
The ECB is buying debt from Ireland and other countries and pumping unlimited funds into the banking system as part of a strategy by European policy makers to stop the euro region from breaking apart.
Mr Trichet said the ECB plans to offer further help to banks struggling to raise finance in money markets. Irish banks are among the most heavily dependent on the money markets for cash.
Nobody outside the ECB knows for sure how what bonds have been bought. Mr Trichet declined to give any details of the nationalities or quantities of bonds purchased beyond a general weekly total announced by the central bank, nor to say how long the programme would run.
"The ECB is really in fire-fighting mode and is no longer thinking about exit," said Nick Kounis, chief European economist at Fortis Bank Nederland in Amsterdam.
Debt
"Interest rates will be lower for longer because of this euro region sovereign debt crisis."
There were further encouraging signs for Ireland as markets snapped up new bonds from Spain and Portugal, showing that fiscally stressed eurozone countries can still access the credit markets. Ireland will be seeking to raise around €1.5bn on the bond markets next week.
Not all the news was good for investors. The Euribor interbank lending rates climbed above the ECB's benchmark interest rate for the first time in seven months yesterday in a sign of persistent reluctance of banks in the euro area to lend to each other.
New York University economist Nouriel Roubini, who predicted the financial crisis, said that the ECB should cut its main lending rate to zero.
Billionaire investor George Soros said, meanwhile, that the global economy had just entered "act two" of the crisis.
- Thomas Molloy
Irish Independent
