The European Central Bank (ECB) kept euro zone interest rates at a record low of 1.0 per cent as expected today, leaving it poised to flesh out a revamp of its lending rules and give its view on Greece's escalating debt crisis.
The ECB confirmed it will keep accepting debt rated as low as BBB- past the end of the year but apply a new range of risk margins, or haircuts, on private sector debt rated in BBB- territory.
ECB president Jean-Claude Trichet denied the changes were designed to help Greece, currently the lowest-rated of the euro zone member states. Government bonds are not affected by the new haircuts.
The ECB, which kept interest rates at a record low 1 per cent, stopped short of a full-blown overhaul of its collateral rules and said further details would be announced in July.
Mr Trichet said the changes would result in a net tightening of the ECB's stance on collateral, but would not bring an undue decrease in the amount of assets banks are able to use as security for loans.
"It is not loosened. It is somewhat hardened," he said of the impact of the rules, to apply from January 2011.
He also brushed off the chance of Greece defaulting on its debt - even though the cost of protecting Greek government bonds against default rose to record highs today.
"I would say that taking all the information I have, a default is not an issue for Greece," Mr Trichet said.
Analysts noted that Mr Trichet was careful not to give away details of the support plan agreed by European Union leaders, while repeating that he still expected Greece to implement budget reform measures.
"The message is the markets are still going to want more information of any bailout plan for Greece but it is clearly a statement of support coming from the ECB here," Barclays Capital economist Julian Callow said.
The turmoil in Greece has been the main driver behind an 8 pe cent trade-weighted drop in the euro since December, and an 11 per cent drop against the dollar.
Mr Trichet confirmed that interest rates remain appropriate, said he expected only moderate growth and inflation ahead and urged governments to boost growth with structural reforms.
PIBA, a network of independent mortgage and insurance brokers in Ireland, said while the decision to hold interest rates was positive for those on tracker mortgages, those on variable rates and first-time buyers were more exposed to rising rates.
"The better value low long-term fixed interest rates are beginning to disappear so there is a very short window of opportunity now for those seeking security around the level of their future mortgage repayments to act fast before the rates increase further," said PIBA chief executive Diarmuid Kelly.
"When the ECB rate does rise it will mean that variable rate mortgage holders, unlike fixed rate holders, will be impacted by what will be a double increase – one to reflect the new ECB rate and one that Irish lenders are likely to apply."
Reuters