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ECB Limited in Options, Says Draghi
Submitted by Tradervox 1 on Thu, 07/06/2012 - 10:34
Tradervox (Dublin) - There was a sense of helplessness in the statement given by the European Central Bank President Mario Draghi as he stressed the limitations of the banks options. He indicated that the central bank can only use its monetary policy by cutting interest rates, which are already at a record low, bond-buying, and injection of liquidity in the market.
He stressed that the bank cannot make quantitative easing or cap bond yields in the region as he indicated that the bank is tasked with ensuring stable prices in the region. He left the ball squarely on the respective governments to ensure that measures suggested are implemented in order to curb the recent crisis.
The ECB decided to keep the interest rate at one percent, which is a record low; it also injected $1.2 trillion into the economy through its three-year loans to financial institutions in the region. Further, the bank also bought 212 billion euro of government debt hence it diminishing its capability to do more before respective governments in the region establish measures to curb respective problems. In his statement, ECB President Mario Draghi cast doubt on the effectiveness of cutting interest rate or flooding financial institutions with more liquidity before the reforms.
However, Draghi said that the central bank is ready to act should the crisis dampen the region’s economy further. Despite keeping the current interest rate, he said that there were some Governing Council members who wanted a rate reduction. He also added that there was no need for LTROs as the effect of the previous loans are yet to affect the market saying that some of the problems in the region are not monetary related.
The crisis in Spain is, however, escalating with Budget Minister Cristobal Montoro calling for outside help in recapitalizing banks in the country. Draghi has deny accusations that he is waiting for government to act before he can embark on using ECB policy tools.
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