ECB Keeps Rate at 1%

The European Central Bank left interest rates at a record low as the Greek fiscal crisis complicates its withdrawal of emergency stimulus measures.

The Frankfurt-based ECB kept its benchmark interest rate at 1 percent. President Jean-Claude Trichet has already announced changes to ECB collateral rules to help Greece as it struggles to finance its debts.

The ECB’s 22-member Governing Council is gradually withdrawing the measures it took to tackle Europe’s worst recession since World War II, including providing banks with unlimited cash. At the same time, concern that Greece’s crisis could spread to other nations in the 16-nation euro region is undermining confidence in the euro. 

While Trichet’s decision to extend the ECB’s emergency collateral rules into next year will ensure Greek bonds aren’t excluded from the central bank’s refinancing operations, the move may come at a cost. The new framework will make it more expensive for banks to exchange Greek bonds for central bank funds because of their lower credit rating.

ECB Keeps Rate at 1%, Bloomberg
4/8/2010 10:12:20 AM