FRANKFURT, Germany, Aug. 2 (Xinhua) — The European Central Bank (ECB) president Mario Draghi on Thursday said the ECB might intervene on the markets to drive down borrowing costs of troubled nations, after eurozone bailout funds do the same.
Speaking at a news conference following a monthly ECB governing council meeting which kept its interest rates at 0.75 percent, Draghi said the council might undertake “outright open market operations of a size adequate to reach its objective.”
The concerns of private investors about seniority will be addressed in this context, he added.
“Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission,” Draghi said.
Over the coming weeks, appropriate modalities for such policy measures will be designed, he said.
However, according to Draghi, any new ECB action was conditional on eurozone governments using the existing bailout funds first.
The development came as Spanish and Italian bond yields hover at record high levels.
Last week, Draghi said at a conference in London that “the ECB is ready to do whatever it takes to preserve the euro.”
“And believe me, it will be enough,” said Draghi.
Draghi’s remarks in London raised expectations that the ECB might revive its Securities Market Program (SMP), under which it buys government bonds on the secondary markets to bring down the borrowing cost of some euro area countries.
The bank has already spent 210 billion euros under the now dormant SMP which is seen by some economists as an indirect form of state financing that is banned by the European Treaty.
|European Central Bank (ECB) President Mario Draghi is seen during a press conference
in Frankfurt, Germany, Aug. 2, 2012. The ECB announced here Thursday that it will keep
its interest rates on hold at 0.75 percent. (Xinhua/Shen Zhengning)
Draghi said in the press conference that it was not known yet whether the open market operations will have a limit or not.
He said the governing council of the ECB unanimously endorsed his remarks of doing whatever it takes preserve the euro in London.
Financial markets were apparently disappointed as Draghi did not announce any immediate interventions, poured cold water on the idea of a banking license for the ESM and tied bond purchases to the EFSF and ESM.
Germany’s DAX closed down 2.2 percent while the CAC-40 in France fell 2.7 percent. The FTSE 100 index of leading British shares was also down 0.9 percent at 5,662.30.
Yield on Spain’s 10-year yield spiked 0.38 percentage points to 7.06 percent, back above the 7 percent level that is considered unsustainable in the long run.
But Berenberg Bank chief economist Holger Schmieding said the ECB president’s announcement “constitutes serious progress.”
“This time, the ECB explicitly vowed to do what it takes to achieve its target and suggested that it may not sterilize the liquidity injection,” Schmieding said.
“Draghi has delivered… Of course, the ECB cannot and has not ‘solved’ the euro crisis,” he said, but pointed out that strong ECB interventions can buy the time required for the ongoing and impressive fiscal repair and pro-growth structural reforms to work.
Draghi had sent a strong message that the ECB would do all it takes, including interventions in sovereign bond markets, to repair the transmission mechanism of monetary result, Schmieding said.
- ECB holds interest rates to assess risks 2012-08-03
- ECB holds key interest rate unchanged at 0.75 pct 2012-08-02
Editor:Wang Chuhan |Source: Xinhua