ECB prepares for the exit as it unwinds crisis measures
THE European Central Bank (ECB) announced yesterday it would start to unwind some of its monetary support for the Eurozone, although it gave no indication of when interest rates might start to rise.
Speaking after the ECB’s monthly monetary policy meeting, President Jean-Claude Trichet outlined the plans for tightening. He confirmed that December’s 12-month liquidity operation would be the last and added the rate charged would not be the usual one per cent. Instead it would be linked to the average minimum cost of funds in its regular weekly loans to banks.
He also announced the ECB would stop lending banks funds over six months from March and he did not extend the extra three-month operations that it has been conducting over the past year.
But Trichet told a news conference: “It should not be interpreted in any respect as a signal of interest rates.”
The decision to start tightening came as the ECB staff hiked their forecasts for growth next year in the single currency area.
They now expect between 0.1 per cent and 1.5 per cent, from between 0.5 per cent and 0.9 per cent.