Thursday, July 7, 2011

ECB Hikes Monetary Policy Interest Rate 25bps to 1.50%

The European Central Bank (ECB) increased the Main refinancing operations rate by 25 basis points to 1.50% from 1.25% and increased (+25bps) the Marginal lending facility to 2.25% and Deposit facility to 0.75%.  The Bank said: "The further adjustment of the current accommodative monetary policy stance is warranted in the light of upside risks to price stability. The underlying pace of monetary expansion is continuing to gradually recover, while monetary liquidity remains ample with the potential to accommodate price pressures in the euro area. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term."

The ECB held the interest rates unchanged at its previous two meetings (May and June), after raising the rate by 25 basis points to 1.25% in April this year; this move marks a continuation of ECB monetary policy normalisation.  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 at its press conference that it would "suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem's credit operations in the case of marketable debt instruments issued or guaranteed by the Portuguese government" until further notice.


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