--Board member says rate cut would boost confidence
--Member says EFSF should buy bonds, not SMP
--New LTRO only in face of generalized liquidity crisis
The European Central Bank is likely to discuss lowering its main
interest rate at its July 5 council meeting, the bank's executive
board member Benoit Coeure said in an interview with the Financial
Times published Wednesday.
Mr. Coeure said there was no obstacle to a rate cut from an inflation
point of view, and said it could help particularly in restoring
confidence to financial markets that, he admitted, "are in disarray."
Mr. Coeure's comments are the clearest yet from the ECB's top
management that it is willing to ease monetary policy further in an
attempt to stop the latest wave of volatility in euro-zone debt
markets, which has been driven by the problems of the banking sector
in Spain. The comments came on the eve of a crucial meeting of
euro-zone finance ministers in Luxembourg, at which the Spanish
government is likely to make a formal request for aid for its banks.
Coeure also said the bank could also loosen, once again, the standards
it sets for collateral that it accepts when lending to banks, to
ensure banks that need liquidity don't run out of eligible assets to
pledge.
"We have not reached the point where there is a collateral shortage
but certainly the amount of excess collateral, the collateral
buffer...has become more strained in some places," Mr. Coeure said.
"There is an ongoing reflection on how to alleviate these tensions."
Banks in the euro zone's periphery have become effectively dependent
on the ECB to keep them afloat, having lost access to private-capital
markets. Spanish banks alone had more than EUR316 billion ($401
billion) in loans to the ECB outstanding at the end of May.
Mr. Coeure said the euro zone's temporary bailout vehicle, the
European Financial Stability Facility, could also contribute to
restoring order in Europe's sovereign-debt markets by buying
government bonds on the open market. However, he said the ECB should
neither restart its own bond-buying program, nor launch another
long-term refinancing operation similar to the two three-year tenders
it held around the turn of the year, which injected a total of over
EUR1 trillion in liquidity into the system.
"We do not consider that the SMP [Securities Markets Program] would be
the best instrument to use at the current juncture," Mr. Coeure said.
Another long-term refinancing operation would be justified only in the
event of "generalized liquidity challenges," he said, adding that "it
is probably not the best instrument in the case of localized
difficulties for banks."
Write to Geoffrey.smith@dowjones.com.
(END) Dow Jones Newswires
June 20, 2012 17:55 ET (21:55 GMT)
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