FRANKFURT: Europe’s two most important central banks took unprecedented moves yesterday to reassure financial markets that interest rates on their side of the Atlantic are unlikely to rise any time soon.
Seeking to calm worries about the political crisis in Portugal and ease concerns that the prolonged period of easy money is coming to an end in the United States, the European Central Bank and the Bank of England separately pledged to keep their borrowing costs low for as long as needed.
The dovish comments triggered a rally in stock prices all around Europe, since it was the first time that either central bank had ever given such forward guidance, a move one analyst called a “mini-revolution”.
Speaking after the ECB held its key “refi” rate steady a 0.50 percent for the third month in a row, ECB chief Mario Draghi vowed that “monetary policy will remain accommodative for as long as necessary”. The guardian of the euro “expects the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said.
In London, too, where the Bank of England also held its interest rate steady at 0.50 percent, the bank’s new governor, Canadian Mark Carney, hinted that there would be no rise in borrowing costs in the short term. Draghi denied any suggestion that the announcements were in any way coordinated, insisting that the ECB’s decision was independent from any move by either the BoE or the US Federal Reserve.
European shares prices rallied and the euro plummeted against the dollar. London’s FTSE 100 index of leading shares up 3.08 percent to 6,421.67 points at the closing bell, Frankfurt’s DAX 30 index rising 2.11 percent to 7,994.31 points, while in Paris the CAC 40 gained 2.90 percent to 3,809.31 points.
The Spanish stock market rose by slightly more than 3 percent. In Portugal, embroiled in a political crisis, Lisbon’s key PSI 20 index of leading shares rebounded 3.73 percent to 5,431.60 points, reassured by efforts to prevent the centre-right governing coalition from breaking up.
Portuguese stocks had plunged 5.31 percent on Wednesday after the shock resignation of two ministers, which had sparked a major selloff in Europe on fresh fears over the eurozone debt crisis.
US markets were shut for the Independence Day public holiday.
The European single currency fell to $1.2922, from $1.3010 late in New York on Wednesday. Sterling also nose-dived to $1.5077 from $1.5278 on Wednesday, while the British currency also dropped versus the euro. On the London Bullion Market, the price of gold firmed to $1,251.75 an ounce.
Asian equities rose. Tokyo slipped 0.26 percent but Hong Kong jumped 1.60 percent, Shanghai rose 0.59 percent and Sydney rallied 1.07 percent. AFP
