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ECB injects €42.2bn into
money markets
Ralph Atkins
Financial
Times
Thursday September 6, 2007
The European Central Bank has injected €42.2bn into euro
money markets in its latest emergency liquidity-boosting operation
that came as the bank’s governing council met for its monthly
interest rate setting meeting.
The operation, making extra cash available for one day, followed
a surge in overnight interest rates this week that has set back
the ECB’s hopes that conditions in money markets were normalising.
The timing appeared to make it almost impossible for the central
bank to announce on Thursday that it is lifting its main interest
rate. “There is little for the ECB to gain by raising rates
at this point but plenty to lose,” said Ken Wattret, economist
at BNP Paribas.
The ECB launched emergency liquidity boosting operations on August
9, when it injected an unprecedented €94.8bn. Until this
week it had succeeded in bringing down overnight interest, and
Jean-Claude Trichet, ECB president, sought to signal a return
to business as normal. But a later injection into the market for
three-month money failed to have the same effect and on Wednesday
overnight interest rates approached the 4.7 per cent peak seen
on August 9.
(Article continues below)
So far, the ECB has seen a clear distinction between its main
monetary policy decisions - aimed at combating long term inflation
dangers - and operations aimed at ensuring the proper functioning
of markets. But an increase in interest rates this afternoon would
be hard to explain so soon after another emergency liquidity boosting
operation and with financial market turmoil continuing,analysts
said.
Although the central bank signalled at the start of August that
a quarter-point rise in its main rate to 4.25 per cent was likely
in September, Mr Trichet last week indicated that it had reconsidered
its options. A rise today would shock markets.
On Thursday afternoon Mr Trichet is to express confidence in
the underlying strength of the eurozone economy and signal that
the ECB’s bias remains towards increasing interest rates
at some point. But it is likely to wait for calm to return to
financial markets before acting.
Since the end of 2005, the ECB has raised its main interest rate
eight times by a quarter percentage point, most recently to 4
per cent in June.
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