The move, which follows last week's coordinated series of measures by the world's major central banks to increase market liquidity, suggests the ECB is still frustrated at the failure to ease financial market tensions, The Financial Times said.
Agence France-Presse Monday night reported that during the two-week market refinancing operation [MRO], the ECB will allow banks to borrow an unlimited amount of funds and would keep the key short-term rate near 4.21%, below the 4.9% rate for similar operations over the past few days.
Last week, the U.S. Federal Reserve, in consultation with the ECB, the Bank of England, the Swiss National Bank, and the Bank of Canada, decided to inject $40 billion via auctions, in two stages, into the financial system. (Further, in addition to reciprocal currency arrangements, the companion central banks also undertook related liquidity actions, including The Bank of England's decision to accept of a wider range of collateral on 3-month loans).
Economic Analysis: On initial review, it looks like "Phase 2" of the coordinated action by the major central banks, led by the Fed, to sequentially provide liquidity to both bring overnight rates back in-line with the central banks' targets, and to ensure the proper function of markets. As noted earlier, look for the central banks to continue to add liquidity in the months ahead as part of a monetary policy strategy by the major industrialized economies to address the impact of subprime mortgage and related asset defaults.
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