Eurozone Monetary Policy


ECB turns down calls to help Greece, stands ready to activate OMTs

At its policy meeting on 8 November, the European Central Bank (ECB) kept the refinancing rate unchanged at a record low of 0.75%. The decision, which was widely expected by the market, represents the fourth consecutive month in which the ECB leaves the refinancing rate unchanged. Meanwhile, the ECB stands ready to activate the Outright Monetary Transactions (OMT) programme announced in September. According to ECB President Mario Draghi, the scheme has already contributed to improve confidence in the financial markets, as it reduced concerns "about the materialisation of destructive forces". In the accompanying statement, monetary authorities maintained the view that there were no signs of improvement in economic activity in the Euro area in the third quarter, despite positive industrial production data in July and August. Moreover, the implied weakness is expected to extend over the rest of the year. Risks to the growth outlook remain on the downside, as the deleveraging process in both the financial and non-financial sector dampen economic activity in the common currency area and growth remains weak at a global level. Regarding price developments, the ECB maintained its view that inflation will be above target in 2012, before falling below 2% over the course of next year. Risks to the inflation outlook remain balanced, as price pressures remain subdued "in an environment of modest growth" in the Euro area. In the press conference following the policy decision, President Draghi turned down calls to provide direct assistance for Greece, amid requests by Euro area members to redirect profits on the ECB's EUR 40 billion Greek debt holdings directly to Hellenic authorities. Draghi noted that, as agreed in the Greek bailout plan, profits on the Securities Markets Program (SMP) holdings accrue to central banks members of the Eurosystem, which are then free to pass along the profits to national governments. It is then "up to the governments to decide whether they want to re-use these profits for Greece". According to Draghi, the ECB is "by and large done" on Greece.

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