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ECB, holding euro rates steady, promises continued support for bloc's banks

Central Bank President Mario Draghi says that December's injection of cheap three-year money is supporting confidence in the eurozone’s economy.

Ecb mario draghi 2012 01 12Enlarge
ECB President Mario Draghi (above) told a news conference in Frankfurt today that last month's flood of cheap three-year loans is supporting confidence in the eurozone’s economy. (DANIEL ROLAND/AFP/Getty Images)

The European Central Bank (ECB) has promised to continue its support for banks in the euro area, saying that last month’s flood of cheap three-year loans is supporting confidence in the euro zone’s economy and prevented a credit freeze across the financial system, The New York Times reported.

Speaking at a news conference in Frankfurt after the ECB’s monthly meeting, President Mario Draghi said the 17-member currency bloc’s economy is showing “tentative” signs of stabilization.

The ECB provided euro zone banks with $643 billion in late December in what are called long-term refinancing operations (LTRO), in order to tackle the euro zone debt crisis.

The bank will open a second round of bidding at the end of February. At its December meeting the ECB also relaxed its regulations as to what collateral it would accept to lend money to banks.

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The bank decided to keep its benchmark interest rate on hold at 1% at today’s meeting, in order to gauge the impact of cuts and other measures undertaken last year to fight the crisis, according to the BBC.

Bloomberg quoted Carsten Brzeski, a senior economist at ING Group in Brussels, as saying that the ECB is “taking a breather because it needs to see how its measures are feeding through and also keep politicians on their toes.”

The decision to leave its main refinancing operations rate unchanged follows two consecutive months of rate cuts, aimed at boosting growth in the eurozone.

“The extensive recourse to the first three year refinancing operation indicates that our non-standard policy measures are providing a substantial contribution to improving the funding situation of the banks, thereby supporting financing conditions and confidence,” Draghi told reporters after the meeting, according to Reuters.

“The decision has prevented a credit contraction that would have been… much, much more serious,” he said.

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http://www.globalpost.com/dispatch/news/business-tech/debt-crisis/120112/ecb-holding-euro-rates-steady-promises-support