ECB chief "confident" on referendum

Thursday 08 March 2012 17.41
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ECB chief Mario Draghi says bank is aware of Irish "fragilities"
ECB chief Mario Draghi says bank is aware of Irish "fragilities"
ECB keeps euro zone rates at 1%, lowers economic forecast
ECB keeps euro zone rates at 1%, lowers economic forecast
Anglo promissory notes "under study"
Anglo promissory notes "under study"
Canada keeps rates at record lows of 1%
Canada keeps rates at record lows of 1%

The president of the European Central Bank has said he is confident that the referendum on new EU budgetary rules will be passed in Ireland.

Mario Draghi was speaking to reporters after the bank's regular meeting in Frankfurt, at which it held its main interest rate steady at 1%.

Mr Draghi was asked by RTÉ News about a restructuring of the promissory notes being used to finance the former Anglo Irish Bank. He said the issue was "under examination" but was not discussed at today's meeting.

The ECB chief said he was confident on the referendum vote because Ireland had made the most progress of all the euro zone countries which had been bailed out. But he said he was aware that there were "fragilities that need to be taken care of".

Meanwhile, the ECB has lowered its forecast for euro zone economic growth this year.

Mr Draghi told reporters the bank's experts had lowered forecasts for euro zone growth this year to a range of between -0.5% and 0.3%. The forecast for 2013 was also lowered to between zero and 2.2%. The downgrade was blamed on the effects of the euro zone debt crisis and higher energy prices.

Mr Draghi said, however, that there were signs of a stabilisation in the euro zone economy, and a gradual recovery was expected this year. But he said the euro zone debt crisis would continue to dampen growth momentum.

He also said inflation would stay above its 2% target this year, due to higher energy prices and increases in indirect taxes such as VAT in euro zone countries. The bank's inflation forecast for this year has been raised to 2.4%.

Mr Draghi also said today that recent action to flood the euro zone banking system with unprecedented volumes of cash had been an "unquestioned success."

In two so-called long-term refinancing operations or LTROs in December and February, the ECB lent more than €1 trillion to euro zone banks at rock-bottom interest rates in order to avert a dangerous credit squeeze.

The ECB hopes the banks will lend the money to households and businesses and also use it to bring down government borrowing costs.

"Both operations I would say are an unquestioned success," Draghi said.

"The risk environment has improved enormously. Markets have reopened, even the interbank market has also started working slightly better. Certainly, we see many signs of returning of confidence in the euro," the ECB chief said.

"We call them non-standard measures for one reason, they are taken for non-standard situations. They are temporary in nature. We have to go back to normal, classical central bank policy," he added.

The ECB cut rates twice late last year to a record low of 1%. Today's decision to hold the main refinancing rate at that level was in line with expectations.

The latest Reuters poll of 74 economists suggests the ECB will hold rates at 1% until well into 2013. Mr Draghi told reporters the bank's governing council did not discuss any interest rate changes at today's meeting.

The euro zone economy has stabilised over recent months, in part thanks to the ECB's back-to-back rate cuts in November and December and the twin funding operations, which brought calm to euro zone debt markets.

Canada says seeing signs of stablisation in Europe

Canada's central bank kept its key lending rate at a near historic low of 1% today. It said the global economy is showing signs of improvement, but growth is still hampered by debt.

"The heightened uncertainty around the global economic outlook has decreased" since the Bank of Canada's last monetary policy report in January, it said in a statement.

"With tentative signs of stabilisation in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased,'' it said.

"However, the global economy is still expected to grow below its trend rate as the deleveraging process in advanced economies proceeds," it added.

Canada's central bank said the US economy is ramping up to a "modest pace" while China is slowing to a "still-high rate" in response to weaker demand for its exports.

Commodity prices are higher than anticipated, bolstered by improved global economic conditions and a risk premium on oil. But this could ultimately dampen the economy's momentum, the bank warned.

Meanwhile, the outlook for the Canadian economy is "marginally improved" from January, it said.