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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.

Danske Bank  | Holmens Kanal 2-12, DK-1092 Copenhagen
http://www.danskebank.com/ | danskeresearch@danskebank.com

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This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

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