FRANKFURT — The European Central Bank left its main interest rate unchanged Thursday, focusing instead on less conventional means of pushing down borrowing costs in troubled countries like Spain where credit remains unaffordable for many companies.
The E.C.B. left its benchmark rate at 0.75 percent, already a record low. Now investors and analysts are awaiting more explanation from Mario Draghi, the E.C.B. president, about how the bank will carry out a pledge to buy bonds on open markets, which proponents believe would be a more effective way of containing borrowing costs in troubled euro zone countries.
Mr. Draghi was scheduled to hold a press conference at 2:30 p.m Frankfurt time.
The E.C.B. has cut its main interest rate three times since Mr. Draghi took over as president in November, but he and other central bank officials have complained that market interest rates have remained stubbornly high in the countries most desperately in need of credit.
Small companies in Spain and Italy pay more than 2 percentage points more for loans than their German counterparts, according to E.C.B. data. The higher interest rates make it even more difficult for companies to invest and for those economies to recover.
“A monetary policy signal, for example the one that the E.C.B. made in July with an interest rate cut, has only a modest impact or no impact at all in the real economy,” Jörg Asmussen, a member of the executive board of the E.C.B., said in Frankfurt on Tuesday.
As a result, the E.C.B. is turning to other means to restore the supply of credit, announcing plans to buy government bonds in large quantities on the open market to push down interest rates. That strategy could also prevent borrowing costs for countries like Italy and Spain from becoming too high for the governments to afford. But bond buying is also designed to help companies, because market interest rates tend to track the rates paid by governments.
Investors are eager to hear more details about how the E.C.B. will intervene in bond markets — for example, whether the bank will continue to treat itself as a preferred creditor that, in the event a country defaulted, would insist on getting paid before anyone else.
The E.C.B. has already indicated that it will concentrate on buying bonds that mature within two or three years, rather than longer-term bonds. And the E.C.B. will only support governments that have asked for help from the European Union rescue fund and agreed to conditions in return.
But it was unclear how much more Mr. Draghi will be able to say about the scale and methodology of bond buying Thursday. He faces vocal opposition from Jens Weidmann, president of the Bundesbank, who has warned that euro zone governments could become addicted to E.C.B. support for their debt.
“Expectations for Thursday’s meeting are high, perhaps too high,” Marie Diron, an economist who advises consulting firm Ernst & Young, wrote in an e-mail.
Even if Mr. Weidmann is a lone voice on the 23-member governing council, he heads the central bank of the largest euro zone country. He is likely to have pushed hard to limit the bond buying and his dissent could raise doubts about how decisively the E.C.B. will act to contain market interest rates.
“The process of agreeing the design of the program has been more tortuous than the market might have hoped when President Draghi first unveiled his plan in London on 26th July,” economists at Royal Bank of Scotland wrote in a note to investors ahead of the rate decision. “The market could be skeptical.”
The E.C.B. left its benchmark rate at 0.75 percent, already a record low. Now investors and analysts are awaiting more explanation from Mario Draghi, the E.C.B. president, about how the bank will carry out a pledge to buy bonds on open markets, which proponents believe would be a more effective way of containing borrowing costs in troubled euro zone countries.
Mr. Draghi was scheduled to hold a press conference at 2:30 p.m Frankfurt time.
The E.C.B. has cut its main interest rate three times since Mr. Draghi took over as president in November, but he and other central bank officials have complained that market interest rates have remained stubbornly high in the countries most desperately in need of credit.
Small companies in Spain and Italy pay more than 2 percentage points more for loans than their German counterparts, according to E.C.B. data. The higher interest rates make it even more difficult for companies to invest and for those economies to recover.
“A monetary policy signal, for example the one that the E.C.B. made in July with an interest rate cut, has only a modest impact or no impact at all in the real economy,” Jörg Asmussen, a member of the executive board of the E.C.B., said in Frankfurt on Tuesday.
As a result, the E.C.B. is turning to other means to restore the supply of credit, announcing plans to buy government bonds in large quantities on the open market to push down interest rates. That strategy could also prevent borrowing costs for countries like Italy and Spain from becoming too high for the governments to afford. But bond buying is also designed to help companies, because market interest rates tend to track the rates paid by governments.
Investors are eager to hear more details about how the E.C.B. will intervene in bond markets — for example, whether the bank will continue to treat itself as a preferred creditor that, in the event a country defaulted, would insist on getting paid before anyone else.
The E.C.B. has already indicated that it will concentrate on buying bonds that mature within two or three years, rather than longer-term bonds. And the E.C.B. will only support governments that have asked for help from the European Union rescue fund and agreed to conditions in return.
But it was unclear how much more Mr. Draghi will be able to say about the scale and methodology of bond buying Thursday. He faces vocal opposition from Jens Weidmann, president of the Bundesbank, who has warned that euro zone governments could become addicted to E.C.B. support for their debt.
“Expectations for Thursday’s meeting are high, perhaps too high,” Marie Diron, an economist who advises consulting firm Ernst & Young, wrote in an e-mail.
Even if Mr. Weidmann is a lone voice on the 23-member governing council, he heads the central bank of the largest euro zone country. He is likely to have pushed hard to limit the bond buying and his dissent could raise doubts about how decisively the E.C.B. will act to contain market interest rates.
“The process of agreeing the design of the program has been more tortuous than the market might have hoped when President Draghi first unveiled his plan in London on 26th July,” economists at Royal Bank of Scotland wrote in a note to investors ahead of the rate decision. “The market could be skeptical.”