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ECB meeting: Positive signals ignored

Thu, Jun 4 2009, 16:40 GMT
by Frank Øland Hansen

Danske Bank A/S

- ECB kept the refinancing rate unchanged at 1.0%. We expect the interest rate to be kept on hold for at least a year.

- Staff projections for growth were revised downwards – in particular for 2009. The ECB projects the economic decline to be slower for the rest of the year than it was in Q1, but does not see positive growth before mid 2010. We believe this is far too negative.

- The purchase of covered bonds for EUR 60bn will be directed towards purchases in both the primary and secondary market. The purchases will start in July 2009 and are expected to be fully implemented at the latest in June 2010.

- Purchases will be limited to covered bonds that fulfil a number of criteria including eligibility for use as collateral for euro system credit operations, circulating volume and rating. The criteria are not as narrow as many observers had expected.

- Trichet did not give details on country distribution of the purchases – only that it “will be distributed across the euro area”. He expects automatic sterilisation, i.e. that the sellers of covered bonds will take less money from the credit operations.

- Trichet mentioned in the Q&A that he was confident that the Latvian government would take appropriate action without changing the currency. Whether this is a signal that they should not devalue is not fully clear.

- He also said that he has talked with chancellor Merkel and confirmed that the ECB acts independently and that they attach a lot of importance to exit strategies.

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Published on  Thu, Jun 4 2009, 16:43 GMT