* What: European Central Bank monthly meeting
* When: March 4. Decision 1245 GMT, news conference 1330 GMT
* Benchmark refi rate EUECBR=ECI seen held at 1.0 percent
* Focus on exit steps, new staff projections
(Updates with meeting started)
By Sakari Suoninen
FRANKFURT, March 4 (Reuters) - The European Central Bank isset to hold interest rates at a record low level of 1.0 percenton Thursday and detail the next steps in its gradual withdrawalfrom emergency lending.
With Greece"s debt troubles unresolved and concerns growingabout the fragility of Europe"s recovery, the monthly meeting isalso expected to adopt a cautious tone on the economy and keepstaff forecasts for growth and inflation largely unchanged.
The 87 economists polled by Reuters were unanimous thismonth in seeing no change in rates and on average expected thefirst rise only in the fourth quarter. [ECB/INT] Money marketsexpect no increases until well into next year.
Instead of the 1245 GMT rate decision, Thursday"s focus willbe on what changes the ECB plans to make to the extra liquidityit has provided for the banking system since the worst days ofthe financial crisis in 2008, with markets primed for someminimal tightening of conditions -- most likely in access to 3-and 6-month money. [ID:nLAG006122]<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For graph on ECB interest rate increase expectations:r.reuters.com/xyt42j For graph of ECB lending to banks:here^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
In the Governing Council meeting, now under way, the16-country bloc"s central bank could switch back to auctions forits 3-month operations, shortening outstanding maturities ascommercial banks take more money in flat-rate weekly operations.
This would make it easier for the bank to reduce excessliquidity as it gradually normalises financing conditions andstarts to push up the overnight interest rates towards the mainrefinancing rate.
In the back of policymakers" minds, however, is the factthat banks must repay a massive 442 billion euros ($603 billion)of 12-month ECB loans at the start of July.
Added to expectations for weak growth in the first quarterand worries about Greek debt, that means the ECB is very likelyto keep spooning out unlimited funds at fixed rates in itsweekly liquidity operations through the second quarter.
"While there is a clear desire to return to normality andregain control of the interest rate instrument, tensionssurrounding Greece and the banks in general are likely to injectsome concern that a too fast exit could be dangerous," GoldmanSachs economist Erik Nielsen said in a note.
"One week operations ... will be left as fixed-ratefull-allotment operations."
Governing Council member Axel Weber buoyed expectations thismonth that the last six-month operation would be indexed to itsmain refinancing rate, though he said returning all maturitiesto tender procedures would not happen at once. [ID:nLAG006110]
FLAT
ECB staff projections for growth and inflation, to bereleased at Thursday"s news conference starting at 1330 GMT, areclosely followed.
In December, it forecast growth of about 0.8 percent thisyear and 1.2 percent in 2011, while inflation was seen at about1.3 percent this year and 1.4 percent in 2011.
While many economists said in December the ECB"s outlook waspessimistic, recent data has endorsed its caution, and EuropeanCommission forecasts released last week were similar.
"I would expect very little change from December or (ECBPresident Jean-Claude) Trichet"s message from February," saidBNP Paribas economist Ken Wattret. "I think the news hasreinforced the ECB"s view rather than challenged it."
However, others argue that the sharp trade-weighted drop inthe euro EUREER=ECBF since the last set of forecasts couldlift both growth and inflation numbers for next year.
Finally, Trichet"s message on Greece will be closelyfollowed. The ECB said late on Wednesday it welcomed the latestausterity steps announced by Greece and appreciated Athens"plans to implement them swiftly. [ID:nLDE6222JN]
Markets are looking for signals whether the ECB wouldpostpone a return to tighter collateral rules for the money itlends to banks, due to fears that Greek government debt would beexcluded next year if Moody"s cut its credit rating to levelssimilar to Fitch and Standard Poor"s.
"The ECB is hoping to avoid having to do anything," said BNPParibas" Wattret. "However, that may not be feasible ... theywill cross that bridge when they have to."
(Additional reporting by Kirsten Donovan in London; editingby John Stonestreet)
(Reporting by Sakari Suoninen; editing by Patrick Graham)
Currencies
No comments:
Post a Comment