Trichet announced that the ECB would provide unlimited funding at the 3-month tenor and it will not absorb the excess liquidity through issuing debt. This policy along with their May 10th action to buy EU debt in the market to help with the Greece crisis and to change their collateral standards all lead to the conclusion that the ECB is embarking in uncharted water with EMU monetary policy. At the same time Trichet argues that the bank's action is not quantitative easing.
“We are not engaged in any form of ‘quantitative easing’,” Trichet said in a speech in Frankfurt today. The program “is designed to ensure an effective functioning of the monetary policy transmission mechanism by helping to resolve a malfunctioning of some segments of the euro-area securities markets.”
An interesting way to put it.
The latest action by the ECB are at odds with comments they made to the contrary just weeks ago. Some have argued that this is a sign of central bank maturity. The ECB responds to a crisis. Other have argued that this monetary response to the crisis t is a sign of weakness and a loss of independence. Yes, rates have not changed but the funds are available even for risky purchases of debt.
We agree with those who argue that this is a significant change in behavior and not just an act of pragmatism. The monetary authority is now validating the financing problem. This is not a liquidity problem, but a simple means to make life easier for the EU. The euro reaction agrees with this view even with the improvement over the last few days.
“We are not engaged in any form of ‘quantitative easing’,” Trichet said in a speech in Frankfurt today. The program “is designed to ensure an effective functioning of the monetary policy transmission mechanism by helping to resolve a malfunctioning of some segments of the euro-area securities markets.”
An interesting way to put it.
The latest action by the ECB are at odds with comments they made to the contrary just weeks ago. Some have argued that this is a sign of central bank maturity. The ECB responds to a crisis. Other have argued that this monetary response to the crisis t is a sign of weakness and a loss of independence. Yes, rates have not changed but the funds are available even for risky purchases of debt.
We agree with those who argue that this is a significant change in behavior and not just an act of pragmatism. The monetary authority is now validating the financing problem. This is not a liquidity problem, but a simple means to make life easier for the EU. The euro reaction agrees with this view even with the improvement over the last few days.
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