BLBG: Trichet Indicates ECB Has No Immediate Plan For More Purchases
European Central Bank President Jean- Claude Trichet indicated the ECB has no immediate plans to increase its asset-purchase plan or cut interest rates further as the economy shows signs of recovery.
“After a stabilization phase, positive quarterly growth rates are expected by mid-2010,” Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at a record low of 1 percent. When asked whether the bond plan would be expanded, he replied: “We have decided to embark on a 60 billion-euro purchase of covered bonds, full stop.”
Evidence is mounting that the worst of the economic crisis may have passed. The contraction in Europe’s manufacturing and service industries is easing and European confidence in the economic outlook rose to a six-month high in April. In Germany, Europe’s largest economy, business sentiment increased for a second month in May.
“They are not going to rush into doing anything more,” said Marco Annunziata, chief economist at Unicredit Group in London. “At the same time, they left the door open to do what is necessary in case of negative surprises.”
The euro was little changed after Trichet’s remarks and traded at $1.4141 at 3:45 p.m. in Frankfurt.
Trichet said today the ECB’s interest rates are “appropriate” at present, language he’s used in the past to indicate that they will be left unchanged in the near future. At the same time, he refused to say rates had reached a floor or expanding asset purchases if needed.
“What the future might be or not, depends on the decision of the Governing Council,” he said. Trichet added that ECB will start buying covered bonds rated not less than BBB in the primary and secondary markets from July.
Split
The 22-member Governing Council has been split over whether to follow the Federal Reserve and Bank of England, which have cut their key rates close to zero and are buying government and corporate bonds to tackle the worst recession in six decades.
The ECB today lowered its economic forecast for this year and next. It now expects the 16-nations euro economy to shrink around 4.6 percent this year and 0.3 next.
In March the bank forecast a 2.7 percent contraction in 2009 and stagnation in 2010.
Trichet blamed “a substantial negative carry-over effect from the previous year and the very weak result for the first quarter of 2009” for the revision.
