Yesterday, the Bank of England’s (BOE) Monetary Policy Committee voted to maintain the bank rate paid on commercial bank reserves at 0.5% and to maintain the stock of asset purchases financed by the issuance of its central bank reserves. The bank rate was previously reduced 0.5% in March 2009 in conjunction with the announcement of the BOE’s asset purchase program.
Similarly, following European Central Bank (ECB) Executive Board member Jose Manuel Gonzalez-Paramo’s speech last week regarding the monetary and fiscal reaction of the euro area to the financial crisis, the ECB announced its plan to maintain its key interest rate at 1%, a record low, as policymakers considered the risks of reducing the emergency lending measures in light of the current fiscal crisis in Greece. As part of its emergency lending measures, the ECB has been and will continue to provide banks with unlimited funding at the key rate with a goal of encouraging lending to individuals and companies throughout the financial crisis.
Separately, during a press conference, Jean-Claude Trichet, President of the ECB, stated that with the decision to leave the benchmark rates unchanged, the Eurosystem continues to provide liquidity support to the banking system of the euro area "at very favorable conditions, thereby facilitating the provision of credit to the euro area," however the Governing Council will "continue to implement the gradual phasing-out of extraordinary liquidity measures."