–Focus Turns To Draghi Press Conference Starting at 13:30 GMT

FRANKFURT (MNI) – The European Central Bank’s Governing Council
decided at its monthly monetary policy meeting Thursday to cut its key
interest rate by another 25 basis points to 1.00%, the ECB announced.

The bank’s decision to lower again its main policy rate after last
month’s 25 basis point cut was expected by many against the backdrop of a
rapidly deteriorating economic outlook and sovereign debt crisis.

Still, a large number of observers thought the ECB would elect not
to move. A minority expected a cut of even greater
magnitude.

The ECB has not historically shown a high willingness to implement
back-to-back rate cuts, preferring to keep its powder dry as long as it
reasonably can. More common in rate-cutting cycles have been two-month
intervals.

The ECB’s decision today to alter its standard monetary policy
stance will likely nonetheless not prevent it from deciding on a number
of non-standard liquidity measures to be announced at the upcoming press
conference.

At the press conference, which will start at 1330 GMT/0830 ET,
Draghi might announce a tender under the fixed-rate, full-allotment
regime with an even longer term than the current maximum of 13 months.

In more normal times, the refi — or minimum bid — rate would be
the lowest rate at which banks could seek ECB financing in competitive
bidding at the ECB’s main weekly refinancing operations. For now and
until further notice, it is the rate at which those refinancing
agreements are fixed for all bidders.

The ECB today also cut both its deposit rate, which is the floor
for euro money market rates, and the marginal lending rate, which is the
ceiling. Today’s cut, on top of the 25 bp cut last month, puts the deposit rate at 0.25%,
and the marginal lending rate at 1.75%.

This leaves the so-called corridor — the difference between the
floor and ceiling rates — at 150 bps. At some point the ECB presumably
intends to restore the corridor to 200 bps, though it does not seem to
consider this a pressing issue.

The next policy-making Governing Council meeting is scheduled for
January 12.

–Frankfurt bureau tel: +49-69-720-142. Email: dbarwick@marketnews.com

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