ECB holds rates steady, not seen firing 'bazooka' yet

The European Central Bank held its main refinancing rate at a historic low of 0.75 percent, as expected, on Thursday, as it continues to assess the impact of its latest anti-crisis measures.

Financial markets have not priced in a rate cut just yet as analysts believe such a move would likely have little effect on the region's sputtering economy at the current juncture.

ECB chief Mario Draghi was scheduled to explain the reasoning behind the move at his regular news briefing afterwards.

Two months ago, the ECB unveiled its new anti-crisis weapon, the so-called OMT bond-purchase programme, aimed at helping out the region's most debt-wracked countries.

The scheme seems to have succeeded so far in bringing down borrowing costs of countries such as Spain without a single bond being bought.

And experts believe that with the feel-good effects showing no sign of fading just yet, the ECB is unlikely to put it into action for now.

ECB watchers said Draghi is not expected to announce any new policy measures at the news conference, as the central bank chief has repeatedly stressed in the past that he sees the ball firmly in the court of governments.

"Although the economic scenario has deteriorated since the last policy meeting in October, Draghi will probably explain that the ECB is willing to sit on its hand, watching the effects of some 'improvement' in financial markets and funding conditions on the real economy," said Newedge Strategy analyst Annalisa Piazza.

"That said, we expect the ECB to leave the door open to further action, stressing on the low level of inflation in the medium-term and downside risks on the economic scenario," she said.

As for non-standard measures, Draghi was likely to stress the ECB's willingness to activate OMTs, conditional to political developments, Piazza continued.

"If anything, Draghi might show some disappointment as governments have not been too pro-active in the direction of aid request," she added.

Capital Economics economist Jennifer McKeown similarly believed that the onus was on governments.

"Following its decision to leave interest rates on hold at 0.75 percent, the ECB is likely to reiterate at today's press conference that it is prepared to purchase Spanish bonds only if the government first accepts fiscal conditions," she said.

But she cautioned that "while just the prospect of the OMT programme is still buoying market sentiment for now, we think that the ECB will have to start buying bonds soon if markets' relief is to be sustained."

Both Piazza and McKeown said that, in contrast to the last meeting, the ECB's governing council may well have discussed either another interest rate cut or unconventional policies aimed at boosting bank lending this time round.

"But neither of these is likely to make a meaningful difference to the economic outlook while the debt crisis remains unresolved," McKeown said.

On Wednesday, Germany's so-called "Five Wise Men" of economic advisors said that it was largely the ECB's non-standard policy moves -- such as its unlimited provision of liquidity and its controversial bond purchase programmes -- that had helped stabilise the eurozone financial system throughout the crisis.

But the experts warned that such measures risked blurring the line between monetary and fiscal policy and should therefore be seen as a stop-gap solution only.

The ECB's bond purchases in particular have come under fire, not least in Germany, for fuelling inflation and covertly financing heavily-indebted governments.

But Draghi rejected such charges again on Wednesday.

"Our actions will not lead to disguised financing of governments. Our actions will not lead to inflation," he insisted.

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