Knock-on Effects: Ecb and Central-Bank Cash

knock-on effects: The Governing Council said it continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, according to Deutsche Welle. Earlier this month, analysts had speculated that ECB President Mario Draghi might prepare markets for a gradual drying-up of the central bank massive bond purchases - purchases which have many knock-on effects, including supporting stock market share prices, as institutional investors scramble to find somewhere to invest the wall of central-bank cash coming into their accounts as they sell their bond-holdings to the ECB. Investors had been spooked by a Bloomberg report suggesting that the ECB was considering gradually phasing out its asset-buying scheme - due to end in March - in a process called tapering. The Governing Council of the ECB announced that the interest rate on the 'main refinancing operations' - the interest it charges to banks for money they borrow from the ECB - as well as the interest rates on its 'marginal lending facility' and the 'deposit facility' will remain unchanged at 0.00%, 0.25% and -0.40% respectively. No changes to ECB easy money policy The Frankfurt-based central bank was quick to deny the Bloomberg report, but the rumors pushed up bond yields anyway, and served as a reminder of how volatile sentiment remains regarding the currency bloc economic prospects. "It too soon for the ECB to provide any guidance on its exit strategy," Berenberg economist Florian Hense said, pointing out that the lender ultra-loose monetary policy had been a critical pillar of confidence in the eurozone. In a statement released Thursday afternoon, the ECB said: "Regarding non-standard monetary policy measures, the Governing Council confirms that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim." In other words, there won't be any 'tapering' of ECB massive purchases of bonds - most of them European government bonds - from secondary bond markets, a process often called 'quantitative easing' in finance jargon. Hense was proven right. (news.financializer.com). As reported in the news.