The European Central Bank left its benchmark interest rate unchanged at a record low Thursday, as policy makers and markets focused on other ways of reviving the euro zone economy.
After a period of intense activity to calm the euro zone crisis, the E.C.B. had not been expected to announce major new policy actions Thursday following a meeting of its governing council in meeting in Brdo pri Kranju, near the Slovenian capital of Ljubljana.
Instead, the focus has been on elected leaders, and particularly whether Spain will meet conditions for the E.C.B. to start buying its bonds as a way of restarting bank lending in the country.
Last month, Mario Draghi, the president of the E.C.B., set out the terms for the central bank to begin buying euro zone government bonds. One of the conditions was that countries must request help from the euro zone bailout fund. Until Spain takes that step, the E.C.B. is not likely to take action.
The E.C.B. promise last month to intervene in bond markets, as well as Mr. Draghi’s vow to do “whatever it takes” to preserve the euro, has calmed tensions considerably. But market interest rates for Spanish bonds have been creeping higher in recent weeks as Prime Minister Mariano Rajoy delays asking for relief, a move which would require him to accept restrictions on how he manages the economy.
On Thursday, the Spanish Treasury successfully auctioned €4 billion of debt, the maximum amount that it had aimed to sell, amid strong demand and paying lower interest rates than when it last sold such bonds.
Analysts cautioned, however, into reading too much into the positive result.
Nicholas Spiro, managing director of Spiro Sovereign Strategy, a research concern, wrote Thursday in a note that investors were “taking an overly optimistic view” of the eventual effectiveness of the E.C.B. bond-buying program.
“Spain’s debt market is currently in a state of limbo,” he wrote. “It is being propped up by an E.C.B.-backed bond-buying scheme that has yet to be put into practice.”
Mr. Draghi was scheduled to hold a press conference at 2:30 p.m. Central European Time, when he will probably be pressed for more details about possible E.C.B. bond buying.
From the E.C.B.’s point of view, there would have been little point in further cutting the main interest rate from 0.75 percent. Rates are already probably too low for stronger countries like Germany, while the official rate is no longer having much effect on borrowing costs for business and consumers in the troubled countries.
The rationale for E.C.B. bond buying is that by lowering the cost of government borrowing in Spain or other countries, interest rates in the private sector would also fall. Market interest rates in euro zone countries like Italy have tended to track the rates that markets demand from their governments, rather than the E.C.B. rate.
In addition, a rate cut now would have left the E.C.B. with few policy options if the situation in the euro zone deteriorates further.
“While a rate cut could easily be justified by the economic outlook,” analysts at ING wrote in a note Wednesday, “we think that the E.C.B. is not yet willing to fire this very last shot.”
Raphael Minder contributed reporting from Madrid.
After a period of intense activity to calm the euro zone crisis, the E.C.B. had not been expected to announce major new policy actions Thursday following a meeting of its governing council in meeting in Brdo pri Kranju, near the Slovenian capital of Ljubljana.
Instead, the focus has been on elected leaders, and particularly whether Spain will meet conditions for the E.C.B. to start buying its bonds as a way of restarting bank lending in the country.
Last month, Mario Draghi, the president of the E.C.B., set out the terms for the central bank to begin buying euro zone government bonds. One of the conditions was that countries must request help from the euro zone bailout fund. Until Spain takes that step, the E.C.B. is not likely to take action.
The E.C.B. promise last month to intervene in bond markets, as well as Mr. Draghi’s vow to do “whatever it takes” to preserve the euro, has calmed tensions considerably. But market interest rates for Spanish bonds have been creeping higher in recent weeks as Prime Minister Mariano Rajoy delays asking for relief, a move which would require him to accept restrictions on how he manages the economy.
On Thursday, the Spanish Treasury successfully auctioned €4 billion of debt, the maximum amount that it had aimed to sell, amid strong demand and paying lower interest rates than when it last sold such bonds.
Analysts cautioned, however, into reading too much into the positive result.
Nicholas Spiro, managing director of Spiro Sovereign Strategy, a research concern, wrote Thursday in a note that investors were “taking an overly optimistic view” of the eventual effectiveness of the E.C.B. bond-buying program.
“Spain’s debt market is currently in a state of limbo,” he wrote. “It is being propped up by an E.C.B.-backed bond-buying scheme that has yet to be put into practice.”
Mr. Draghi was scheduled to hold a press conference at 2:30 p.m. Central European Time, when he will probably be pressed for more details about possible E.C.B. bond buying.
From the E.C.B.’s point of view, there would have been little point in further cutting the main interest rate from 0.75 percent. Rates are already probably too low for stronger countries like Germany, while the official rate is no longer having much effect on borrowing costs for business and consumers in the troubled countries.
The rationale for E.C.B. bond buying is that by lowering the cost of government borrowing in Spain or other countries, interest rates in the private sector would also fall. Market interest rates in euro zone countries like Italy have tended to track the rates that markets demand from their governments, rather than the E.C.B. rate.
In addition, a rate cut now would have left the E.C.B. with few policy options if the situation in the euro zone deteriorates further.
“While a rate cut could easily be justified by the economic outlook,” analysts at ING wrote in a note Wednesday, “we think that the E.C.B. is not yet willing to fire this very last shot.”
Raphael Minder contributed reporting from Madrid.