FRANKFURT: The European Central Bank will hold off from cutting rates or announcing any other policy moves at its meeting next week so as to keep up pressure on governments to solve the eurozone’s crisis, analysts said.
The ECB has never hesitated to act as firefighter in the long-running crisis, which seemed to have abated until political gridlock in Italy and the crisis in Cyprus sent shockwaves through financial markets once again.
Throughout the crisis, the central bank has slashed its key interest rates, pumped more than ¤1 trillion into the banking system to avert a credit crunch and sought to tame borrowing costs in worst-hit countries by buying up their sovereign bonds.
The moves appeared to pay off, allowing the markets to enjoy an extended period of calm, at least until recently when elections in Italy ended in a political stalemate and Cyprus’s parliament rejected the terms of a tough bailout deal with its international creditors.
But while all eyes will be on ECB chief Mario Draghi to calm the markets once again when he holds his regular monthly news conference on Thursday, ECB watchers say the central bank looks likely to keep its gunpowder dry for the time being.
“The ball remains in the court of national governments and parliaments,” said Berenberg Bank economist Christian Schulz.
“The failure in Italy to form a government, but also the potentially dangerous precedents enforced by creditor countries in Cyprus are mostly to blame for the increased downside risks to the economy,” he argued.
AFP
