September 13, 2001 WSJ
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ECB Leaves Interest Rates Steady,
Says No Change Increases Stability
Dow Jones Newswires
FRANKFURT -- The European Central Bank left interest rates unchanged Thursday -- the first major central bank to hold a regular monetary-policy meeting after terrorist attacks took U.S. markets out of commission earlier this week.
Although the ECB hadn't been expected to cut rates just two weeks after it lowered the minimum bid rate by a quarter percentage point to 4.25%, analysts couldn't completely rule out such a move in the wake of Tuesday's unprecedented events. Many say the terrorist attacks have dramatically raised the likelihood of a global recession.
The ECB repeated that it "stands ready to support the normal functioning of markets."
The bank said that while it expects normal market conditions to prevail, it will continue to monitor developments in financial markets and take action if necessary. The bank said it is coordinating its activity with the U.S. Federal Reserve and other major central banks of the world.
On its Web site, www.ecb.int, the ECB said "the fundamental strength and resilience of the U.S. economic system will not be impaired by the recent events."
ECB President Wim Duisenberg indicated Wednesday to the European Parliament's Economic and Monetary Affairs Committee that a "quick move" on interest rates in response to market jitters and potential threats on economic growth "would rather have inspired a reaction of panic than that of stability and calmness."
"It is true that there may be long-term consequences from this one-off event, this one-off external shock that has been dealt to the financial system also. But it is far too early to judge what these consequences are going to be," Mr. Duisenberg said in response to a suggestion that the ECB make a "truly courageous decision" at Thursday's governing council meeting by lowering rates.
Instead Mr. Duisenberg stressed that sticking to stability-oriented policies would do more to instill public confidence in monetary authorities in times of crisis.
The ECB meeting began early Thursday amid heightened security at its Eurotower headquarters in central Frankfurt. Tension mounted half an hour before the meeting's start when a fire alarm, which turned out to be a false alarm, was triggered at the building. Governing council members looked tense and were tight-lipped as they entered.
Already, the ECB, the U.S. Fed and other central banks have stepped in with extra measures to ensure that financial institutions have enough funding to continue operating smoothly. The ECB on Wednesday conducted a rare one-day "quick tender," pumping 69.3 billion euros in extra liquidity to the money markets, and on Thursday it added 40.5 billion euros in a similar operation.
Operationally, there are steps that major central banks can take to help the financial system function without having to lower interest rates, observers said. However, the longer-run impact from the U.S. attacks is an erosion in consumer and business confidence in the U.S. and further afield that could tip an already fragile global economy into recession.
That's why some economists don't rule out a U.S.-led round of coordinated interest rate cuts soon, although with Fed Chairman Alan Greenspan only just returning to the U.S. from Switzerland Wednesday, it's unlikely that such policy coordination could take place in a couple of days.
Mr. Duisenberg had also told committee members that the ECB stood ready to help the U.S. if needed and asked -- and that such help "could take any form."
Later Wednesday, however, Bank of England Governor Eddie George indicated that while it's too soon to speculate on the need for coordinated rate cuts, such a move would be unlikely.
Money markets have now priced in deeper easing by the ECB in the aftermath of the U.S. tragedy. December Euribor futures point to a minimum bid rate of 3.75%. Before Tuesday, the expectation had generally been for a 4% rate. |
