Arab Today, arab today ecb in \waitandsee\ mode after unprecedented moves
Last Updated : GMT 14:36:28
Arab Today, arab today
Arab Today, arab today

ECB in \'wait-and-see\' mode after unprecedented moves

Arab Today, arab today

Arab Today, arab today ECB in \'wait-and-see\' mode after unprecedented moves

Frankfurt - AFP

The European Central Bank will hold borrowing costs steady Thursday after cutting rates twice in recent months and providing unprecedented amounts of liquidity to avert a credit crunch, analysts said. The ECB will want to see how these moves have played out, economists said, although some said they hoped to see signals of even lower rates amid signs of a credit crunch and ongoing fears over Greece. However, the economic fundamentals for the 17-nation eurozone have not changed significantly, with Germany in particular showing better-than-expected resilience to the debt crisis. So, ahead of a second huge auction of liquidity at the end of this month and next month's publication of the ECB staff projections for inflation and growth, "the central bank is unlikely to act on either interest rates or non-standard measures," said Christian Schulz, senior economist at Berenberg Bank. Since the ECB's new president Mario Draghi took office 100 days ago, the central bank has brought eurozone borrowing costs back down to their previous historical low of 1.0 percent. It has also offered banks in the region an unlimited pool of liquidity by loosening collateral rules, cutting the minimum reserve ratio and launching new three-year loans at super-cheap rates. "It is reasonable to assume that the central bank will want to assess the response of financial markets, the banking sector and the real economy to the huge stimulus already in place and in the pipeline, before deciding whether to deliver additional easing," said UniCredit economist Marco Valli. "The ECB has probably entered wait-and-see mode." Draghi insists the ECB measures are working. At the World Economic Forum in Davos, Switzerland, last month, he said the eurozone had made "outstanding" progress towards resolving the debt crisis. Central bank watchers said they would be listening out for signals regarding more possible rate cuts in the future. "If not decided this week, we guess Draghi should strongly suggest, or even announce a rate cut for March," said Cedric Thellier, eurozone economist at Natixis. "Significant downward revision of the quarterly projections that will be released next week and worrying figures from the recent bank lending survey would be sufficient from our point of view to justify such a move," Thellier said. In a sign of a possible credit crunch, the ECB found in its latest regular quarterly bank lending survey that banks have tightened credit conditions for both households and businesses even as demand for loans is falling. Capital Economics chief European economist Jonathan Loynes said attention would likely focus on the possibility of the ECB writing down parts of its holdings of Greek bonds. It would be a "positive signal" if the bank were to agree to such a move, said Thellier at Natixis. Greece's private creditors are being asked to write off about half of the 200 billion euros' worth of government debt they hold to help cut the country's total debt burden down to a sustainable level. The ECB has come under pressure to take losses on the Greek government bonds it holds as the restructuring by private creditors is unlikely to bring down Greece's debt to the target of 120 percent of GDP in 2020 from 160 percent at present.

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