ECB Holds Interest Rate at 1.50%, Resumes Bond Buying

The European Central Bank (ECB) held the Main refinancing operations rate unchanged at 1.50%, the Marginal lending facility at 2.25% and Deposit facility at 0.75%.  The Bank said: "The information that has become available since then confirms our assessment that an adjustment of the accommodative monetary policy stance was warranted in the light of upside risks to price stability.  While the monetary analysis indicates that the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures.  As expected, recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter.  Continued moderate expansion is expected in the period ahead.  However, uncertainty is particularly high".

The ECB increased the interest rates by 25 basis points at its July meeting; pausing in May and June, after raising the rate by 25 basis points to 1.25% in April this year.  The Euro Area reported annual HICP inflation of 2.7% in June (same as May), compared to 2.8% in April, and 2.7% in March, and above the Bank's inflation target of maintaining inflation below, but close to, 2% over the medium term.  The Euro Area reported quarterly GDP growth in the March quarter of 0.8%, following a 0.3% increase in the December quarter of 2010.

The ECB also announced it would recommence bond buying: "Given the renewed tensions in some financial markets in the euro area, the Governing Council today also decided to conduct a liquidity-providing supplementary longer-term refinancing operation (LTRO) with a maturity of approximately six months." ... "The Governing Council also decided to continue conducting its MROs as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last maintenance period of 2011 on 17 January 2012."

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