The ECB denies nudging Portugal towards its bail-out, but data just released suggest otherwise. Despite growing problems in the eurozone the ECB bought no government bonds last week. Buying government bonds either at auction or through the secondary market is a practice employed heavily in the past but frugally of late to suppress the cost of debt in vulnerable economies and shore up market confidence.
It also means the ECB did not buy any bonds in Portugal’s punitive bill auction last week. The prohibitive cost of debt at that auction is likely to have influenced Portuguese policymakers in seeking a bail-out. Lisbon is facing the expiry – and therefore the refinancing – of nearly €4.4bn debt in mid April and the bill auction gave an indication of the market’s likely price. Read more
The competition to succeed Jean-Claude Trichet, who steps down as European Central Bank president at the end of October, was a big story in February - when Axel Weber, Germany’s Bundesbank president, withdrew from the race. Since then it has gone quiet.
Now news agency reports from the European Union finance ministers’ meeting near Budapest, Hungary, at the weekend suggest a decision may not be taken until an EU summit at the end of June. Germany’s government “has decided to form its opinion close to that date,” Bloomberg reported Wolfgang Schäuble, the country’s finance minister as saying.
That sounds plausible. Read more
More-hawkish-than-expected noises from the ECB have led analysts at Citibank to revise their rate forecasts upwards. They now think there will be two rate rises instead of one in 2011, with the key marginal lending rate ending the year at 1.75 per cent, with an outside chance of 2 per cent. Analysts expect the next, quarter point, rate rise in July.
Evidence of hawkishness is cited as follows. (1) The governing council said that even after the April rate hike, “interest rates across the entire maturity spectrum remain low”, adding that the policy stance remained “accommodative”. (2) President Trichet also said the ECB would continue to ”monitor very closely“, a phrase typically associated with a further rate rise within two meetings. Read more
A senior Portuguese banker has said that the European Central Bank pressed the country’s lenders to stop increasing their use of its liquidity – setting in train events that led Lisbon to ask for a bail-out this week.
António de Sousa, head of the Portuguese Banking Association, said that the message from the ECB and Portugal’s central bank not to expand their exposure to ECB funding further came a month ago. Read more