–Focus Turns To Draghi Press Conference Starting at 13:30 GMT

FRANKFURT (MNI) – The European Central Bank’s Governing Council
decided at its monthly monetary policy meeting Thursday to leave its key
interest rate at 1.0%, the ECB announced.

The bank’s decision to leave its main refinancing rate unchanged
was expected by virtually all observers after 25-basis-point cuts in
each of the two preceding months.

Although the economic outlook in the Eurozone continues to
deteriorate and the crisis continues to smolder, a third consecutive
rate cut would have been a very strong statement for the ECB — though
not an unprecedented one. Following the Lehman Brothers failure in
autumn of 2008, when the global financial crisis took a sharp turn for
the worse, the ECB cut its key financing rate in seven consecutive
months, bringing it from 4.25% in October to just 1.0% by May 2009.

However, financial markets are currently not pricing in any further
rate cuts this year.

Essentially, the surprise repeat move in December is seen as having
brought forward the rate cut that had been expected for January, so that
the ECB can now pause.

In more normal times, the refi — or minimum bid — rate would be
the lowest rate at which banks could seek ECB financing in competitive
bidding at the ECB’s main weekly refinancing operations. For now and
until further notice, it is the rate at which those refinancing
agreements are fixed for all bidders.

The ECB today also left unchanged both its deposit rate, which is
the floor for euro money market rates, and the marginal lending rate,
which is the ceiling. Following last month’s decision to cut them both
by 25 basis points, the deposit rate is now 0.25% and the marginal
lending rate at 1.75%.

This leaves the so-called corridor — the difference between the
floor and ceiling rates — at 150 bps. At some point the ECB presumably
intends to restore the corridor to 200 bps, though it does not seem to
consider this a pressing issue.

The next policy-making Governing Council meeting is scheduled for
February 9.

–Frankfurt bureau tel: +49-69-720-142. Email: dbarwick@marketnews.com

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