ECB rate cut was pre-emptive, bond buys temporary

Fri Nov 4, 2011 10:42am EDT
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By Sakari Suoninen and Eva Kuehnen

FRANKFURT (Reuters) - The European Central Bank's interest rate cut on Thursday was a pre-emptive strike, policymaker Juergen Stark said on Friday, and urged the bank to call an early halt to its sovereign bond-buying programme.

The comments by Stark, who will step down from the bank's six-strong Executive Board at the end of the year, signal the ECB is not preparing to cut its key policy rate again this year.

He also stressed that the bank's programme of buying sovereign debt was temporary and dismissed suggestions it should be made permanent even as the ECB faces pressure to ramp up purchases to tackle the euro zone debt crisis.

The controversial programme has increasingly come into focus as the debt crisis has deepened due to uncertainty about Greece's future in the euro zone. Many analysts see ECB bond buying, and the firepower it could unleash, as the only way to steady markets.

Stark is quitting the ECB early this year in what sources have said is a protest against the bond-buying programme.

The ECB's new president, Mario Draghi, said on Thursday the programme was "temporary" and "limited," reiterating the stance of his predecessor Jean-Claude Trichet and suggesting Draghi wants to keep up pressure on euro zone governments engulfed by the debt crisis to reform.

"Mario Draghi made clear that this is a temporary measure and it's no secret that I have never been a particular fan (of the programme)," Stark told a conference in Frankfurt.

"I expect that we should end this programme as soon as possible, because it sets false incentives for member states, for governments to bring their budgets in order."   Continued...