The European Central Bank (ECB) has decided once again to keep its official interest rate unchanged at one per cent, as was widely expected by analysts.

Following the rate cuts applied in November and December of 2011, the ECB has been taking a ‘wait-and-see’ approach to see the effects of its prior measures.

As such, the ECB had little incentive to cut rates after it already injected a total of EUR529bn in its second three-year lending operation on February 29th. That was on top of the EUR489bn that was injected in the first such operation back in December. It was even more telling that 800 banks participated in the second auction.

It is believed that the ECB prevented a credit crunch with December’s LTRO and hopes are that the second LTRO will make credit flow into the private sector, including households and non-financial companies.

What is undoubtedly clear is that the central bank is continuing to apply a very expansive monetary policy in order to confront the economic slowdown in the Eurozone. Many member countries have already dipped back into recession.

The market will now be reacting to ECB president Mario Draghi’s statements and the continuous news flow covering the Greek debt swap agreement. That will keep traders more than busy ahead of tomorrow’s US employment report.

FM