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IMF chief hails ECB's move

Sep 07. 2012
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By The Nation

The European Central Bank's decisions have been hailed by International Monetary Fund Managing Director Christine Lagarde.

"We strongly welcome the ECB's new framework, the Outright Monetary Transactions (OMT), for intervention in sovereign bond markets of countries accepting EFSF (European Financial Stability Fund) and ESM (European Stability Mechanism) support for their macroeconomic adjustment programmes and adhering to the associated structural and fiscal reform efforts.

The IMF stands ready to cooperate within our frameworks," Lagarde said in a statement released in Washington.

"Decisive implementation of the new intervention programme will help repair monetary transmission, and support countries' efforts to secure finance at a reasonable cost while they undertake sustained macroeconomic adjustment. We see the ECB's action as an important step toward strengthening stability and growth in the euro area."

While cutting growth forecasts in 2012 and 2013, the ECB yesterday announced the OMT, a mechanism for buying stricken nations' government bonds. ECB President Mario Draghi said bonds bought under the bank's new programme will rank alongside those held by private creditors, which would keep private creditors' interest in sovereign bonds.

To be purchased are the government securities repayable in three years or fewer. ECB also said it would buy unlimited amounts of the bonds.  

The bond-buying plan will assist the monetary policy transmission mechanism in all euro area countries," Draghi told reporters in Frankfurt on Thursday.

"We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area."

The latest decision came as the ECB revised down the economic projection of the euro zone, from minus 0.1 per cent in 2012 to minus 0.4 per cent. In 2013, the zone is expected to show economic growth of only 0.5 per cent, from the previous forecast of 1 per cent. Yesterday, it also left its benchmark interest rate at a record low of 0.75 per cent.

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