Europe back in action to revive the economy

Published: Friday, October 7, 2011, 11:54 [IST]

Due to intensifying downside risks and to boost the struggling banks of European region, the European Central Bank (ECB) on Thursday came out with two new reforms to revive the Euro zone. The efforts will act as the aid to the cash-strapped banks.

As the signs of recession still remains, Central Bank has decided to keep the rates unchanged at 1.5%, though some policy-makers tried to convinced for that move, but chances are that it may cut rates in coming months.

ECB took possible steps right after Bank of England announced its second round of Quantitative Easing by buying bonds to bring down the interest rates and to support the Britain's faltering economy.

The Bank of England announced Quantitative Easing and said that it will buy government bonds of 75 billion euros.

ECB announced that it will inject two new revival reforms in the economy by providing ultra-cheap 1-year funding to banks and buying back 'covered bonds' of 40 billion euros ($54 billion) in coming year.

The bond-buying of covered bonds was also effected in 2009 during last financial crisis.

Covered bonds are the bonds which are backed by mortgages and other assets and that's one of the key sources of funds for the banks.

Jean-Claude Trichet, in his last policy meeting as ECB president said, "The economic outlook remains subject to particularly high uncertainty and intensified downside risks and neither the financial market turmoil nor the economic outlook for the euro zone are likely to improve the near term.”

The bank later split into two parts for cutting rates, but decision postponed for time being, analysts expect that ECB may cut rates in November.

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Story first published: Friday, October 7, 2011, 11:54 [IST]