Key rates unchanged at 1%

ECB President Trichet announced during the Q&A session that the Bank will adopt further fixed rate tender procedures with full allotment in the regular three-month longer-term refinancing operations to be allotted on 28 July, 25 August and 29 September 2010. This ensures generous liquidity provision until the end of the year and confirms that a rate hike in 2010 is quite unlikely. 

Regarding the non-standard measures (purchase of bonds) taken during the period of severe financial market tensions, he announced that they will be continued and insisted that they are fully consistent with our [the ECB's] mandate and, by construction, temporary in nature. We remain firmly committed to price stability over the medium to longer term. He did not, however, announce any further details.

Staff projections for Eurozone GDP have been revised slightly upwards for 2010 essentially as a result of foreign demand due to stronger projected growth in export destinations. Inflation too has been revised upwards because of higher commodity prices in Euro. The projections take into account ongoing fiscal adjustments and should therefore include effects stemming from those.

Markets reacted with optimism with both the Euro and German Government bond yields increasing. The precise reason for this, other than generally higher confidence (also due to the measures taken), seems unclear.