ECB’s activities during Jan 1st to April 15th

European Central bank is the central bank of euro area. It is responsible for conducting monetary policy to stabilize the economy in euro area. The economic crisis and European sovereign-debt crisis began from 2009 continue to worried euro zone countries. The major policy aim of ECB in the first season in 2012 is continue to stimulate the European economy and give assistance to European banks and government. According to ECB, their major task is using short-term interest rate to “maintain the euro purchase powered,” which means their first aim is the price stability.

In 2012, the European Central Bank has temporally been stopped the Securities Markets Program they conducted last year. ECB has been buying the government bonds directly by open market operation, by injecting euro into debt crisis in order to bailout. ECB brought government bonds from secondary markets, in order to lower down the borrowing cost (interest rate) and give relief to government in debts. SMP has been criticized for reckless. Although it did work out: according to the New York Times, “Spain’s 10-year bonds carry interest rates that hover around 5.5percent, compared with 7 percent and higher in November, and Italy’s five-year bonds are approaching 5 percent, down from nearly 8 percent at their peak.”

On January 12th, ECB President Mario Draghi announced that the European Central Bank continue to held the interest rate at 1%. The marginal lending facility and the deposit facility remain unchanged at 1.75% and 0.25% respectively.  Facing the “very grave” economic situation, the ECB drop its forecast of 2012 for euro region from 1.3% to 0.3%. The low interest rate is expected to continue to stimulate the lending activity and investment

On February 9th, the European Central Bank announced they will continue to hold euro interest rate at 1%. The lending rate and deposit rate remain unchanged at 1.75% and 0.25% respectively. This is the second month ECB continued to hold the interest rate at a low percentage. Mr. Draghi said there is small signed that Eurozone economy begin to stabilize. And he expect the euro area economy to “recover very gradually” in 2012. ECB continue to have stable and transparent policy in holding low interest rate, in order to give stimulation for banks to recover.

On February 20th, the European Central Bank said that they had stopped purchasing the government bonds last week. ECB bond purchases have been reduce to €59 million, or $78 million the week before. The major bailout policy changed from SMP to focus on refinancing operation.

ECB also make an agreement on the Greek bonds exchange program. ECB holds a huge amount of Greece bond

On February 29th, the European Central Bank announced a new long-term refinancing operation (LTRO). The LTRO is monetary policies similar to Federal Reserve’s Quantitative Easing (QE) which aim at stimulate economy. The difference is that LTRO is mainly focus on bank sector, instead of a general stimulation. This is the second LTRO since the one ECB settled in December last year. According to the news article from Business Week, in the second LTRO, the ECB will “lend banks 529.5 billion euros ($712.2 billion) for 1,092 days, topping the 489 billion euros handed out to 523 institutions in the first three- year operation in December.” This means the first and second LTRO will totally lend Europe banks about 1 trillion euros in the three-year length. 800 European banks can borrow this amount of money from ECB at the rate of 1%.  It is the biggest stimulation policy offer by ECB since Mario Draghi became ECB president. By giving a low interest rate fund to banks, they increase the liquidity in financial sector. Banks can recover from debts and stimulate them to lend money and to invest. The LTRO reduce the fear of bank failure and offering oppurtunities for banks to buy government bonds. In this sense, instead of buying the government loans directly by open market operation, LTRO let ECB turn to support banks to buy government bonds in order to solve the sovereign crisis.

After the announcement of second LTRO, the overnight deposit of Eurozone banks has hit the record high as €776.9 billion.

On March 8th, the Europe Central Bank continues to maintain the interest rate on the main refinancing operations at 1%. The lending rate and deposit rate remain unchanged at 1.75% and 0.25% respectively. This is the third month ECB continues to hold their interest rate at 1%. Mr. Draghi confirm there is sign of stability in economy and said the “risk environment has been improve enormously. The ECB continued to express confidence to markets through the regular press meeting.

On April 4th, the Europe Central Bank announced to hold the interest rate at 1%. This is the fourth month ECB maintained their interest rate unchanged. The lending rate stayed at 1.75% and the deposit rate stayed at0.25%

According to these activities rang from January to April, we can see clearly that all the monetary police of ECB is still aiming at stimulating European economy. From January to April, the major monetary policy conducted by ECB is maintaining the low interest rate and the  second Long Term Refinancing Operation. ECB holds the interest rate as low as 1% for four months. The low interest rate is aimed at stimulate the Eurozone economy. ECB is following “forward guidance” in conducting their monetary policy.  The continuity of the euro interest rate reflects that ECB is holding the same policy for a long time, in order to create transparency and confidence to the market. The second LTRO will  Eecb does not have the ability to use open market operation.