ECB President Mario Draghi's pledge to keep interest rates at record lows for as long as necessary sent the euro plummeting almost 100 points to 1.3549 as the New York market opened this morning. But the support at 1.3550, which has been tested at least five times, held firm and the euro recoiled to 1.3595 and consolidated at 1.3585.
"The Governing Council strongly emphasizes that it will maintain an accommodative stance of monetary policy for as long as necessary," Mr. Draghi told reporters in the news conference following the bank's decision to keep its main refinance rate at a record low of 0.25 percent. Mr. Draghi also warned that it is too soon to be sure that the euro zone is out of danger.
Mr. Draghi said that his use of "firmer words" in the prepared statement "reiterates our decisiveness to act if needed." But in reality his "firmer words" underline the central bank's inability to take concrete action to provide more stimulus to the European economies.
The ECB cannot intervene directly in the continent's bond and credit markets to reduce commercial interest rates as the Fed has done through its quantitative easing purchase program. The ECB is forbidden from monetizing the sovereign debt of EMU members.
The central bank floated the idea recently about using negative interest rates for the funds that its member banks keep on deposit that is charging for the deposits, in an effort to encourage the banks to lend the money out into the economy but decided against enacting the penalty.
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