ECB keeps its gunpowder dry
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FRANKFURT, Nov 8 AFP
November 09 2012, 04:28AM
The European Central Bank has held fire on both interest rates and other policy measures at its regular monthly meeting, insisting the onus is now on governments to get the eurozone's finances on a sustainable footing.
"The ball is completely in the court of the governments, not the ECB," central bank chief Mario Draghi repeatedly told a news conference on Thursday after the bank's governing council voted to keep borrowing costs in the single currency area at their current historical lows.
Financial markets had not priced in any rate cut this week as analysts believed such a move would likely have little effect on the region's sputtering economy at the current juncture.
And Draghi gave no clear indication as to when such a move might come.
When asked whether the governing council had discussed a possible easing of monetary conditions at its meeting Thursday, Draghi was evasive, saying only that all monetary instruments had been discussed.
Nevertheless, he appeared downbeat about prospects for the euro area economy, which some ECB watchers interpreted as a sign that the central bank could cut rates further down the line.
"Looking ahead to next year, the growth momentum is expected to remain weak," Draghi said.
The ECB's policy measures - both standard and non-standard - were supportive for economic growth, he argued.
"But the necessary process of balance sheet adjustment in the financial and non-financial sectors and an uneven global recovery will continue to dampen the pace of recovery," he said.
Draghi said the bank's latest anti-crisis measures - the OMT bond-purchase program unveiled two months ago - stood primed for action, but it would be up to governments to decide when to take advantage of it.
"We stand ready to act," he said. "The mechanism is a fully effective backstop. And it's in place. It's up to countries to take the right steps for it to be activated," Draghi said.
In September, the ECB unveiled the OMT or Outright Monetary Transactions scheme, whereby the central bank buys up the sovereign bonds of the region's most debt-wracked countries as long as key conditions are met.
The mere announcement of the scheme seems to have succeeded in bringing down borrowing costs of countries such as Spain without a single bond being bought.
ING Belgium economist Carsten Brzeski said Draghi's insistence on the importance of the OMT program "indicates that the ECB currently does not consider rate cuts as an effective tool to tackle the recession".
The OMT "remains the crown jewel in the ECB's anti-crisis toolbox", he said.
But it "is not the magic bullet that can also restore growth. Even with structural reforms, austerity measures and an active OMT, chances are high that the ECB will need to come up with additional measures to support the eurozone economy. A rate cut, even if it will not come next month, could be part of the measures," Brzeski said.
By Simon Morgan