An unconventional ECB meeting

by Stephanie Flanders

BBC News
December 8, 2011

Interest rates used to be the central focus of any central bank meeting. These days they're almost an afterthought. Especially for the European Central Bank (ECB).

For the world's leading central banks, the action is all in "unconventional measures" to support the economy and the banking system: like the UK's latest round of quantitative easing, or "operation twist" by the US Federal Reserve.

But it doesn't get more unconventional than the policy debate about the ECB.

Investors are expecting the ECB to cut interest rates later to help the eurozone economy, which may already have slipped into recession.

A quarter point cut in the main policy rate, to 1% is highly likely - with market prices suggesting a 50/50 chance of a half a percentage point cut.

Many also expect the ECB to do more to ease the funding pressures on Europe's banks, offering longer-term funding for banks that need it, possibly in exchange for somewhat less collateral.

At the very least, the ECB president is expected to promise that these "exceptional" facilities for helping the financial system will not be taken away any time soon.

But none of this will excite the markets - or the commentators.

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