RTTNews - Hours after announcing the decision to maintain the benchmark interest rate and detailing the asset purchase plan, Eurozone policymakers aired their views at different locations.
In Warsaw, the European Central Bank President Jean-Claude Trichet said this is a time of unprecedented uncertainty and challenges. He noted that Eurozone policymakers did not hesitate to charter unknown territory and to move forcefully to battle the adverse consequences of the financial crisis.
We have to respond forcefully to the challenge, but we should never forget the principles for sound macro-economic policy making, Trichet said.
On Thursday, the ECB left its key interest rate unchanged at a record low of 1% and Trichet detailed the plan to buy covered bonds worth EUR60 billion in the primary and second markets. The ECB has lowered interest rates by a total of three and a quarter percentage points since early October 2008.
Speaking at a conference to mark the 20th year of the collapse of the socialist economy in Poland, the central bank chief said the Governing Council would not compromise, in any respect, the longer-term achievement of the price stability objective or encourage or tolerate imprudent behavior by market participants.
He noted that the non-standard policy measures adopted by the ECB are unprecedented in terms of their breadth and depth. The evidence of ECB's bold as well as solidly anchored response to the crisis is encouraging, he added.
While long-term inflation expectations continue to remain broadly anchored at levels consistent with price stability, our measures show some signs of revival in the functioning of money markets in Europe.
Regarding the EUR60 billion covered bond purchase plan announced in May and detailed on Thursday, Trichet said the decision to buy covered bonds was motivated by the fact that these bonds are a segment of the private securities markets that has been particularly affected by the financial turmoil.
Reiterating the importance of restoring confidence among banks, households and market participants, the central banker said confidence relied on immediate agility of action and the soundness and credibility of ECB's exit strategy.
He asserted that the Governing Council will ensure that the measures taken can be quickly unwound and the liquidity provided absorbed, once the economic environment improves. Hence, any threat to price stability over the medium and longer term will be effectively countered in a timely fashion.
Elsewhere on Friday, Governing Council member John Hurley said in an interview to the Irish broadcaster RTÉ News that after recording a significant contraction in 2009, the Eurozone economy will see an extended and gradual recovery next year.
Though recent data points underpin Hurley's optimism on the Eurozone economy, the picture is still bleak for Ireland, where he heads the central bank. On Thursday, rating agency Moody's downgraded the ratings of the Anglo Irish Bank. Further, the agency placed on review for downgrade, ratings of other Irish banks.
The rating agency noted that its review will look at the extent to which Ireland's ability to provide support to its banking system may be impacted by the weakening of the government's own debt capacity (which is under review for possible downgrade) as a result of the ongoing global economic and credit crisis.
With regard to Eurozone interest rates, Hurley said in the interview, We haven't taken any decision that this is necessarily the lowest rate. We never pre-commit. We have to assess the data as it emerges and make our decision on the basis on that data.
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