ECB offers new emergency support to banks

The European Central Bank offered new emergency loans to banks today to help them through the turmoil of the continent's government debt crisis — but decided against an interest rate cut despite mounting fears of another recession.

Bank president Jean-Claude Trichet, holding his last news conference before retiring at month's end, did not even indicate that a rate cut was possible at the next month's meeting.



Many economists have predicted the bank will have to cut its key refinancing rate from 1.5 percent in coming months to stave off a rapid economic downturn. But if the ECB keeps to its habit of signaling moves at least a month ahead of time, that would mean no cut before December at the earliest.



"The economic outlook remains subject to particularly high uncertainty and intensified downside risks," Trichet said, adding however that "at the same time interest rates remain low."



He noted that inflation, the ECB's main focus as the monetary authority for the 17-nation euro, will likely remain well above target for months.



Trichet will leave office to his successor, Mario Draghi, with his typical stance — as a strict inflation fighter who has repeatedly touted the bank's record on keeping prices under control. Lower rates can mean a short-term boost to growth and jobs. But rates that are too low can cause inflation over the longer term and undermine the value of the currency.



Instead of cutting rates, Trichet focused on emergency credit measures to keep the financial system working properly.



Jitters in the banking sector have intensified in recent weeks and threaten to claim their first victim since the 2007-2009 financial crisis, Franco-Belgian bank Dexia. Dexia was already bailed out in the earlier phase of the crisis and now is struggling to raise funding.



To avoid a new credit crunch like the one that cut off credit to businesses and plunged the world economy into its sharpest recession since World War II, the ECB decided to flood the financial system with all the loans it needs.



The bank will offer an unlimited amount of 12-month and 13-month loans to banks. That will provide banks financing for a longer period — into 2013 in the case of the 13-month offering — and shield them from turbulence in borrowing markets.



The ECB will also keep offering unlimited amounts of credit at its shorter-term lending operations of up to 3 months through the first half of next year.



Many European banks are exposed to losses on Greek debt. That has made borrowing between banks, crucial for their daily functioning, increasingly difficult because of fears the money might not be repaid.



Trichet said the ECB would also buy up to €40 billion ($53 billion) in covered bonds, a type of security used by banks to raise funding. The ECB's presence will help free up that credit market and make borrowing easier for banks.



The bank has maintained throughout the crisis that its unconventional measures such as extra credits are kept in a separate track from interest rate policy, and Thursday's decisions continued that stance.



Trichet said that the 23-member rate-setting council made its interest rate decision by consensus, not by unanimity, suggesting not everyone agreed.



The bank's caution to not boost growth contrasted with the Bank of England's decision earlier Thursday to buy another £75 billion ($116 billion) in securities from banks, a step which expands the supply of money in the economy and can promote economic activity.



That makes the Bank of England the first major central bank to move to counterract the slide in global growth that has intensified since this summer.



The ECB's main role under the EU treaty is defending against inflation, which unexpectedly spiked to 3.0 percent in the eurozone in September from 2.5 percent the month before. The ECB expects inflation to fall below 2 percent by next year.



It was that role that Trichet focussed on as he reminisce briefly about his eight years in office, pointing to both the bank's record at keeping inflation close to its goal of just under 2 percent over the nearly 13 years of its existence, and at keeping money market inflation expectations in line with that.



"Have we delived price stability? Yes, we have delivered price stability," he said. "Are we credible in delivering price stability over the next 10 years? Yes. These are not words, these are deeds."



"On top of that we have to cope with the worst crisis since World War II," he said.

PA

Life and Style
tech
Sport
Farah returns to the track with something to prove
Commonwealth games
News
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Shinji Kagawa and Reece James celebrate after the latter scores in Manchester United's 7-0 victory over LA Galaxy
football
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
Life and Style
fashion Designs are part of feminist art project by a British student
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
News
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

English Teacher

£110 - £130 per day + Pay between ?110 - ?130 Day: Randstad Education Cardiff:...

SAP Deployment Manager

£480 per day + competitive: Progressive Recruitment: SAP Deployment Manager-Ta...

Microsoft Dynamics CRM Consultant

£50000 per annum + benefits: Progressive Recruitment: Urgently seeking a Dynam...

Test Lead - Financial Reporting - Banking - London

£350 - £400 per day: Orgtel: Test Lead, London, Banking, Financial Reporting, ...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game