ECB holds interest rates and offers loans to banks

 

Jean-Claude Trichet is stepping down as president of the European Central Bank

The European Central Bank is offering new emergency loans to banks to help steady the eurozone's financial crisis.

The ECB said the new funding, worth about 40bn euros (£35bn) would enable banks to draw down one-year loans.

Speaking at a news conference, ECB President Jean-Claude Trichet urged "banks to do all that is necessary to reinforce balance sheets" where needed.

Earlier, the ECB left eurozone interest rates unchanged at 1.5% because inflation is likely to stay "elevated".

"The situation of the banking sector calls for particular attention," Mr Trichet said.

Mr Trichet retires at the end of the month and will be replaced by Bank of Italy head Mario Draghi.

It is the third month in a row that the ECB has left interest rates unchanged, after being raised from 1.25% in July.

Analysts said the decision to hold rates was a surprise.

Chris Williamson, chief economist at Markit, said: "The ECB's decision to focus on inflation instead of reversing rate hikes made earlier this year is a surprise, as a rate cut appears to have been warranted, according to the recent downward trend in business surveys."

Earlier, the UK's Bank of England kept interest rates on hold at 0.5%, but re-started quantitative easing with a £75bn package.

The decisions come amid intense speculation that European leaders are preparing moves to recapitalise banks.

Some economists had expected the bank's 23-member governing council to cut rates because of signs of slowing growth in the eurozone economy.

There is increasing expectation in the financial markets that eurozone leaders are close to announcing an action plan to bolster the banking system.

German Chancellor Angela Merkel said on Wednesday she was in favour of a co-ordinated recapitalisation of European banks if that was deemed necessary.

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