Arab Today, arab today ecb holds rates steady amid cyprus concerns
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ECB holds rates steady amid Cyprus concerns

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Arab Today, arab today ECB holds rates steady amid Cyprus concerns

Frankfurt - AFP

The European Central Bank held Thursday its main refinancing rate steady at a historic low of 0.75 percent, despite concerns about the fallout from the Cyprus bailout for the eurozone as a whole. As widely expected, the ECB did not announce any changes in interest rates for the 17 countries that share the euro, which have been held at their current record low levels since July 2012. And ECB watchers said they did not expect any other policy measures to be announced by central bank chief Mario Draghi at his usual monthly post-meeting news conference. Instead, attention would focus on what Draghi would have to say about the situation in Cyprus, analysts said. The decision not to cut borrowing costs any further \"probably reflects a view that a cut would not help rather than a belief that more policy support is not needed,\" said Capital Economics economist Jennifer McKeown. \"After all, the business surveys have deteriorated again since the bank\'s last meeting, suggesting that the recession might have deepened even before the effects of the Cyprus crisis were known,\" the expert said. Draghi could still bolster confidence slightly by hinting at future unconventional policy support during the press conference, McKeown suggested. Most obviously, he could suggest some concrete plans to get finance to small and medium-sized enterprises and pledge continued support for the banking sector, she said. \"However, he is likely to reiterate that any sovereign bond purchases will come only after the government in question has applied for an EU bail-out and accepted the associated strict fiscal conditions. Accordingly, doubts over the ECB\'s willingness to do \'whatever it takes\' to save the euro seem likely to grow,\" McKeown said. Newedge Strategy analyst Annalisa Piazza believed that while the case for further rate cuts was stronger, with signs that the eurozone economy is entering another period of recession, \"we suspect Draghi will avoid to announce further non-standard measures today.\" The Italian central banker would likely adopt \"a rather dovish tone, mainly based on the development of activity. If anything, Draghi will reiterate that the ECB will maintain a very accommodative stance and that a rate cut has been discussed today,\" she added. Last month, Draghi joked that \"every week there is a new angst\" and ECB watchers were convinced that following the widespread confusion over the Cyprus bailout, it would fall to Draghi, once again, to calm resurgent market fears. There had been much \"hysteria, hullabaloo and hyperbole\" in the markets since the Cyprus parliament rejected the tough terms of a bailout package with its international lenders, but the \"much hyped contagion (was) conspicuous by its absence,\" said Royal Bank of Scotland economist Richard Barwell. The capital controls eventually agreed for Cyprus were \"not the end of the line for Cyprus; and they are certainly not the end of the line for the euro. Freak out if you wish, but the (ECB\'s) governing council will keep calm and carry on,\" the expert said. Marie Diron at Ernst & Young said she would listen for any hints Draghi might have on how to tackle the difficulties facing small and medium-sized enterprises (SMEs) in drumming up credit. \"It still costs a lot more for the average Spanish firm to borrow from a bank than it costs its German counterpart. These differences go beyond normal and justified risk premia related to different economic environments,\" Diron said. ING Belgium economist Carsten Brzeski said that \"to kick-start lending to SMEs, the ECB would either have to provide further direct relief to the banks or buy bundled-up SME loans. Such a move, however, would be hard to sell politically as core eurozone countries could regard it has recapitalisation of peripheral banks through the back door.\"

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