To: John Pitera who wrote (2089 ) 6/8/2000 8:25:00 PM From: John Pitera Read Replies (1) | Respond to
variable rate tenders, applying the multiple rate auction procedure. The Governing Council has decided to set a minimum bid rate for these operations equal to 4.25% . This is the same rate as that which will prevail for the two fixed rate tenders to be implemented following today's decision. --- greater-than-expected half-percentage point, while the bank's president said the move wasn't tied to the struggling euro. main refinancing rate, the amount charged on loans to banks, to 4.25% from 3.75%. Most economists expected the ECB to increase rates by just a quarter point in order to bring euro-zone rates in line with U.S. rates. The U.S. Federal Reserve in May raised key lending rates by a half point to 6.5% . increasing risks of inflation -- and not to boost the euro. Despite the ailing common currency, Thursday's move "is in no way a reaction to the exchange rate developments," he said.96.53 cents immediately following the announcement, its highest level since mid-April, before dropping back somewhat. Meanwhile, European shares tumbled from early morning highs on Thursday following the rate decision.marginal lending rate to 5.25% from 4.75%, and the deposit rate to 3.25% from 2.75%, both effective June 9. The overnight rate is the interest paid by the ECB when local banks deposit excess money. The marginal lending rates is the interest paid by banks to the ECB when they need quick emergency loans.began tightening monetary policy in November, raising rates by a total of 1.75 percentage points since then. diminished as the currency bounced back from an all-time low of 88.45 cents against the U.S. dollar. switch to a variable-rate system in its main refinancing operations -- meaning banks will have to name a rate they are willing to pay for loans, starting at 4.25% . The central bank said the switch is effective June 28. The 4.25% minimum bid rate also will apply to the next two refinancing operations on June 15 and June 21.variable-rate tender wasn't a move by the central bank to mimic the U.S. Federal Reserve system. This system "is closer to the one we wanted to have from the beginning, " he said. severe overbidding which has developed in the context of the current fixed-rate tender procedure." The bank said it wouldn't rule a switch back to fixed-rate tenders in the future.curtail overbidding for fixed-rate loan amounts at its refinancings, which are the central bank's most important instrument in managing liquidity in the market and steering rates in line with its monetary policy stance. greater leeway in steering market rates as it decides the rate for its two-week lending facility from a pool of rates bid by banks . But the switch also will make the central bank vulnerable to market forces that might race ahead and bring market rates far above levels seen desirable by the ECB, thus boosting volatility.
