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ECB rates held steady

February 9, 2012

The European Central Bank has kept eurozone borrowing costs at an historic low of 1 percent, after cutting rates twice in recent months. Uncertainty about the eurozone economy is still high, the bank says.

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Euro sign in front of bank buildings by night
Symbolbild Europa Bonität RatingagenturenImage: picture-alliance/dpa

European Central Bank president Mario Draghi explained the ECB's rate decision to keep the lending rate at 1 percent with improvements in the eurozone economy in the past month, although he said uncertainty would remain high.

"Available survey indicators confirm some tentative signs of stabilization of economic activity at low level around the turn of the year," Draghi told a news conference after the bank's monthly policy meeting in Frankfurt.

The benchmark rate is important for banks because it defines the rate they have to pay to borrow money from the ECB for their own refinancing or to pass it on to households and businesses as loans.

Draghi also said that the ECB's rate setting council "did not discuss any prospective or current change in interest rates," noting that the bank's recent liquidity operations were "still unfolding."

New cash injection

Analysts said the ECB first wanted to see how the unprecedented amount of liquidity it pumped into the banking system in December was working out.

At the time, the central bank flooded the banking sector with cheap money, offering 489 billion euros ($641.2 billion) in three-year loans for just 1 percent interest.

The move was intended to ease tensions in financial markets, notably to avoid a credit crunch in the eurozone, as the debt crisis worsened.

In view of a recent "tightening of credit conditions" in several eurozone countries, Draghi said, "Uncertainty is high with [regard to] the global economy, sovereign debt market tension, and the credit markets."

The ECB is due to carry out a second low interest loan operation later this month, with the cash injection expected to reach up to one trillion euros.

No hand on Athens

Mario Draghi refused to say how the ECB intended to help the Greek government after the main parties there had reached agreement on a new set of austerity measures earlier in the day.

Mario Draghi
ECB president Draghi is confident a solution will be found to Greek debt crisisImage: dapd

Athens has urged the ECB to hand back profits on the Greek sovereign debt it holds - a move which could raise up to 12 billion euros to help ease Athens financing needs.

Highlighting Thursday's agreement in Greece, Draghi said that he was "quite confident that all these pieces will fall into place now."

Author: Uwe Hessler (Reuters, AP)
Editor: Michael Lawton

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