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ECB holds fire on rates but on alert

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Published : 2014-07-04 21:13
Updated : 2014-07-04 21:13

ECB chief Mario Draghi takes part in a news conference in Frankfurt, Germany, Thursday. (Bloomberg)
FRANKFURT, Germany (AFP) ― The European Central Bank as expected held its interest rates unchanged at its policy meeting Thursday, a month after taking unprecedented measures to ward off deflation in the euro area.

But ECB chief Mario Draghi insisted the central bank remained on high alert and would take further action again if necessary.

As widely predicted, the ECB’s decision-making governing council decided to hold the bank’s main refi refinancing rate steady at 0.15 percent.

ECB watchers had not been flagging any new policy moves this month after the central bank unveiled a package of extraordinary measures in June in its battle to prevent the single currency area from slipping into deflation, a dangerous downward spiral of falling prices.

At that meeting, the ECB entered uncharted waters, taking one of its key interest rates into negative territory for the first time.

This means that banks will be charged for parking funds at the ECB to encourage them to lend to businesses and consumers instead.

Draghi also unveiled plans to pump more liquidity into the financial system later this year using the Targeted Long-Term Refinancing Operation.

The TLTRO measures are different to the steps the ECB took at the end of 2011 and the beginning of 2012 to boost liquidity.

At that time, banks were deemed to not be lending enough to the small- and medium-sized companies that form the backbone of the eurozone economy.

This time, the ECB is instead targeting loans to encourage banks to lend to households and non-financial corporations.

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