PARIS (MNI) – With the announcement of three new unlimited
allotment three-month tenders, the ECB has put its exit from
non-conventional liquidity measures on hold and will remain in crisis
mode for some time, said analysts who watched today’s press conference
by ECB President Jean-Claude Trichet.

Some expressed frustration at Trichet’s unwillingness to reveal
more details of the ECB’s bond purchasing plans. Below are excerpted
comments from analysts following the press conference:

RAINER SARTORIS, HSBC Trinkaus: Right now it does not look like as
if there will be a major change in the bank’s monetary policy. The ECB
is going to provide unlimited liquidity to the banking system for a
longer time, for example three-month tenders were announced to
compensate for the maturity of the one-year tender, so we have
shorter-maturity of the outstanding money. The one thing that is
changing is that the flexibility of the ECB is increasing, but as it
looks right now, the banking system needs additional liquidity also next
month and so overall there will not be less money in the system in the
months to come. In addition, in this environment it is very unlikely
that the ECB will hike rates, but this was the view before the press
conference so there is no change to this forecast. Our current view is
that the ECB is going to hike rates in March 2011.

HOWARD ARCHER, IHS Global Insight: With the Eurozone sovereign risk
crisis and accelerated and intensified fiscal tightening in a number of
countries adding to the downside risks to already limited Eurozone
growth prospects, we now expect the ECB to keep interest rates down at
the current level of 1.00% not only through 2010 but deep into 2011.
Indeed, we currently see interest rates only rising to 1.50% in the
fourth quarter of 2011. Furthermore, the ECB may well have to continue
to engage in non-standard measures for some considerable time to come.

TORGE MIDDENDORF, West LB: I think the outlook did not change that
much. The ECB is still in a crisis mode; they extended the liquidity
provision for the 3-month tenders. There is no change to our interest
rate outlook. I think the ECB will hold on to the 1% level until the
beginning of 2012. I think they will start next year with the unwinding
of unlimited allotment. They already cut off liquidity provisions at the
6 and 12-month horizons, but I do not rule out that they might return to
the 6-month liquidity provision.

KENNETH BROUX, Lloyds TSB Corporate Markets: The ECB, at the turn
of the year, has tried to wind down its liquidity operations. What it is
doing now is…redeploying some of them. [The central bank] is not going
as far as 12-month money, but with the three-month money it is pretty
obvious that the ECB wants to help and unblock the lending in the
European banking world. Where do you go from here? Well, especially on
rates, we’re not going anywhere. At least in the near term. Still too
much uncertainty…It was a slightly better performance from Trichet
compared to his press conference in Lisbon last month. A bit
disappointing not to get more details on the bond purchases.

KENNETH WATTRET, BNP-Paribas: There was plenty of speculation ahead
of the meeting about what the ECB might do to contain the contagion from
the debt crisis. In the event, the 3-month refinancing operations were
extended on a fixed rate full allotment basis through Q3 and that was
it. This is the minimum, in our view, the ECB could do. This may turn
out to be a missed opportunity to capitalize on the positive turn in
sentiment in markets prior to the meeting. We shall see. The statement
was very similar to last time. The new staff projections show slightly
faster growth than before for this year, but lower for next year.
Inflation was revised up a bit in both years. No surprise. The core
themes of stuttering recovery and low inflation pressures remain intact.
Again no surprise.

STEPHEN WEBSTER, 4Cast: The essence of the press conference was
that Mr. Trichet tried to do away with suggestions that the
bond-purchasing programme would compromise the ECBs mandate of price
stability. But there are still doubts. It will be a long process of
public relations. Trichet is unwilling to give much detail [about the
bond purchases]. This is possibly a source of disquiet for the markets
who would like to see more transparency. The 3-month announcement was no
surprise. They will continue to oil the wheel. Staff forecasts were as
expected, but inflation forecasts for 2010 might be too low. There is a
risk of it being higher, with inflation reaching 1.6% already in May.

PHILIP SHAW, Investec: There wasn’t anything particularly
surprising in there, I guess the most significant news coming out of
there was the news of the three LTROS in July, August and September.
That’s important because it acknowledges the uncertainty in credit
markets, stemming from the European debt situation, and it formally
delays the ECB’s exit strategy from special measures. We’re not
surprised given that you’ve got 442 billion in one year assistance
maturing on July 1st. Nonetheless, setting out three LTROs over the
subsequent three months is quite important.

JULIAN CALLOW, Barclays: Overall, today’s Press Conference was
broadly in line with our expectations and consistent with the ECB being
on a “crisis footing”, ie, wishing to preserve maximum flexibility and
unwilling to give too much visibility about its own expectations for
monetary policy and operations in the context of “unusually large
uncertainty”. As expected, Mr Trichet did not disclose further new
information about the ECB’s bond purchase operations, while in the Q+A
he disclosed that the Council would undertake its regular scheduled 3m
LTROs (longer-term refinancing operations) during Q3 in a fixed rate,
full allotment tender, which is not surprising given the prevailing
circumstances…No other new information about new or altered operations
was given.

ANDERS METZEN, Nordea Bank: I would say that is was good to see
Trichet a little more on top of the issues. Last time, he appeared a
little irritated and my interpretation is that, last time, he had
concluded a meeting where, basically, there wasn’t much agreement. And
so, he had difficulty communicating with the market at the press
conference to give a confident impression that the ECB had some relevant
measures to stem the crisis. This time, he was much more on top on
defending the program to purchase government bonds. He seemed far more
confident than last month.

GERNOT GRIEBLING, LBBW: In regards to the government bond purchase
program, the ECB was rather unwilling to give further details or
information on it. On the one hand I can understand because the ECB is
in the difficult situation in that if it were to deliver the information
that the program is two-thirds or three-quarters completed, then the
spreads of the PIIGS countries versus the Bund would significantly widen
again, which would undermine the aim of the program to begin with. But,
on the other hand side, as a tax payer of a Eurozone member state, I
think perhaps there is a justified public interest in what the central
bank does because in the unlikely case one member state were to default
and if the ECB had previously bought billions of euros of government
bonds from this state, then this would imply that the ECB would probably
show a loss on its balance sheet and the Finance Ministers of Eurozone
member states would have to compensate the bank for this loss.

MICHAEL SCHUBERT, Commerzbank : With respect to liquidity
measures, it is hardly surprising that Trichet said little about the
bond purchase program. He wants to leave all options open, if he had
placed a limitation on the program or had named an amount it would have
fed speculation in the markets, but the ECB wants to be completely free
in its actions. The ECB wants to support markets, as shown by the new
three-month tender operations. Thus, until the end of the year
commercial banks should have no problems getting liquidity from the ECB.
The exit of unconventional measures must come before an interest rate
hike, and we do not see an interest rate hike before September 2011.

CHRISTEL ARANDA-HASSEL, Credit Suisse: I thought it was rather
disappointing in the sense I think he missed the opportunity to perhaps
give some more constructive comments, partly because clearly this press
conference is being conducted against the backdrop of the [fact that
the] bond purchases by the ECB [are] getting less and less and he could
have at least reiterated, ‘hey guys, we’re going to do what we need to
do, for as long as it takes,’ — but he basically refused to be drawn
into any of this. All we caught was three months of fixed-rate
allotments. LTROS definitely help in the margin; at least they’re
providing liquidity and helping funding. But I think he could have been
a little bit more supportive when it comes to bond purchases.

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