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ECB holds key rates steady

Top EU lawyer says ECB bond-buying programme legal /AFP /AFP

ECB holds key rates steady/AFP

NICOSIA, Mar 5- The European Central Bank Thursday held its key interest rates steady, as expected, as investors waited for ECB chief Mario Draghi to reveal more details of the bank’s much-anticipated bond purchase programme.

At the ECB’s regular policy meeting, held in Nicosia, Cyprus this time instead of the usual venue of Frankfurt, the governing council voted to hold the benchmark “refi” refinancing rate at its current record low of 0.05 percent.

The two other key rates — on the deposit and marginal lending facilities — were also unchanged at -0.2 percent and +0.3 percent, respectively.

Draghi was expected to explain the reasoning behind the decision at his usual post-meeting news conference.

But ECB watchers said the main focus for the financial markets would be any details on the bank’s new programme of quantitative easing or QE, which Draghi had announced in January.

Under the programme, the ECB plans to buy 60 billion euros ($68 billion) of private and public bonds each month for at least 18 months in a bid to ward off deflation in the euro area.

The ECB will also publish its latest updated growth and inflation forecasts for the 19 countries that share the euro.

“If anything, the (ECB’s) macro economic assessment should have improved,” said ING DiBa economist Carsten Brzeski.

Fourth quarter gross domestic product (GDP) data was better than expected.

“And the latest batch of sentiment indicators signalled that the lower energy prices and weaker euro have finally reached the eurozone economy,” Brzeski said.

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By contrast, the 2015 inflation projection was likely to be slashed once again, owing to much lower oil price assumptions.

Analysts said the new forecasts would, for the first time, take into account the possible impact of the QE programme.

– Greece tops agenda –

Another focus of attention at the news conference would be Greece, analysts said.

There has been a recent head on battle between Greece and its international creditors on the terms of extending its bailout programme.

Greek banks are dependent on the ECB for financing, but the central bank has said it no longer accepts Greek sovereign bonds as collateral for loans. That means they now rely solely on emergency liquidity assistance (ELA) which is more expensive than normal central bank refinancing operations.

And until the new left wing government in Athens agrees definitively to remain within the bailout programme, ELA financing looks likely to be the only lifeline for Greece’s banks.

According to a Greek government source on Wednesday, Prime Minister Alexis Tsipras called Bank of Greece governor Yannis Stournaras ahead of the ECB meeting, asking him to contribute to the restoration of liquidity in the Greek economy “through all available means.”

“It is likely that the ECB will wait for a more formal assessment of the reform progress before making Greek government bonds (and government guaranteed assets) eligible as collateral for regular refinancing operations. This may happen in April,” said UniCredit analyst Marco Valli.

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