Markets eye Europe central bank's next move

The European Central Bank is set to hold fire at its pre-Easter policy-setting meeting on Wednesday, as it continues to assess the impact of recent anti-crisis moves, analysts say.

The ECB's governing council has brought forward its regular monthly meeting to Wednesday, owing to the Easter holidays.

But it is not expected to announce any changes in interest rates -- currently on hold at the historically low level of 1.0 percent.

Indeed, ECB watchers are keen to see whether president Mario Draghi has any further cards up his sleeve to bring the long-running sovereign debt crisis to an end, or whether the bank is now drawing up a so-called "exit strategy" to wind down the raft of recent exceptional policy measures.

The ECB has played fire-fighter since the start of the crisis, cutting interest rates, buying up the bonds of debt-mired countries, and most recently, pumping more than 1.0 trillion euros ($1.3 trillion) into the banking system in a bid to avert a dangerous credit squeeze.

In the wake of such moves, analysts believe the ECB will now hold its fire as it assesses what effects its actions are having.

"We expect no change in the (interest) rate and no announcement of further liquidity measures," said UniCredit economist Marco Valli.

Berenberg Bank senior economist Christian Schulz agreed.

"There are no surprises likely at this week's ECB meeting," he said.

"We expect the ECB to keep interest rates at 1.0 percent. We also do not expect Draghi to announce new stimulus measures, while not closing the door on them either."

ING Belgium economist Carsten Brzeski noted that some officials already seem to be talking about an exit strategy.

Last week, ECB member Benoit Coeure insisted that "a timely exit from non-standard measures and a return to a less accommodative stance -- once the economic conditions are ripe -- are essential."

Low interest rates over long periods "might fuel excessive risk-taking, leverage and asset price bubbles ... (and) might discourage banks, companies and governments from strengthening their balance sheets and therefore create a dependence on low rates," Coeure argued.

Schulz at Berenberg Bank suggested, however, it was too early for the central bank to consider hanging up its fire-fighting helmet at this point.

"Economic data for the eurozone shows that the currency zone remained in recession in the first quarter," he said.

Inflation was on a downward trend and "monetary growth and lending to the private sector remain weak," he said.

ECB officials insist the liquidity measures have been a success but central bankers and analysts agree they will not be enough to solve the eurozone's crippling debt crisis on their own.

"We must realise that all the money we put on the table will not buy us a lasting solution to the crisis," said ECB governing council member and Bundesbank President Jens Weidmann.

"All we can buy is time, time that must be used to address the root causes of the crisis," he said.


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