Photo: European Commission
UPDATE: The ECB left its target rate unchanged at 0.75 per cent today.Believe it or not, this is just the prelude to a press conference later today, when the central bank could announce more potent policy measures.
The euro moved only slightly higher on these measures and markets are virtually unchanged in the wake of the announcement.
Here’s the statement from the ECB:
2 August 2012 – Monetary policy decisions
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
ORIGINAL: All eyes are on a monetary policy decision from the European Central Bank at 7:45 AM ET.
This will actually prove a tricky moment for markets, because a rate cut might be a market-negative rather than market-positive sign. We explained yesterday that this might be a sign that ECB President Mario Draghi will not announce anything new at a press conference at 8:30 AM ET.
That said, the press conference following the decision will likely prove more important than the statement itself. Statements from the central bank are notoriously terse and leave out non-standard measures.
If Draghi is going to make good on hints he’s been giving about taking strong action to restore faith in Italian and Spanish bonds—and thus bring down borrowing costs for those governments—he’ll likely do it in the press conference. That was the case with the announcement about two three-year, liquidity supplying LTROs last year.
Investors are hoping that Draghi will at least restart a program in which the bank purchases Italian and Spanish bonds on the secondary market. That would raise the cost of those bonds, pushing down their yields. This would likely mitigate unsustainable borrowing costs for another month, leaving time for EU leaders to take more permanent action.