ECB keeps rates steady, revises key figures

10:05, June 11, 2010      

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The European Central Bank (ECB) kept its main interest rate locked at a record low of 1 percent Thursday as financial markets demanded details on a controversial program to buy up debt from eurozone countries.

ECB governors decided last month to purchase billions of euros in debt issued by countries such as Greece, Ireland and Portugal, but the move was opposed by at least one senior official and damaged ECB credibility.

ECB President Jean-Claude Trichet had said only days earlier that the option was not even discussed during the bank's regular meeting in early May.

The ECB is trying to resolve a chronic financial crisis that has squeezed lending to both governments and commercial banks, recalling credit-crunch conditions after the collapse of US investment bank Lehman Brothers in 2008.

The ECB has done all it can to ensure no banks or eurozone members default on their debts but investor sentiment has become a stiff headwind and driven the euro lower against other major currencies.

Eurozone banks parked a record 368.98 billion euros ($445 billion) with the ECB overnight Wednesday, rather than lend the funds to each other amid fears their partners might not be able to repay the money.

The ECB has another milestone looming, as record 12-month funding worth 442 billion euros ($532 billion) taken up by the commercial banks comes up for repayment.

Some observers say weaker eurozone banks have come to depend on the central bank funds.

Trichet might therefore announce additional exceptional measures to ease a shift back towards inter-bank borrowing once the situation allows for it.

The Frankfurt-based ECB is not the only central bank in Europe to have adopted accommodative monetary policies.

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