Maintaining narrow focus on bank lending

The ECB looks almost certain to leave interest rates on hold at 1.0% this month, where we expect them to remain until at least the end of 2010. There is little hope that any new unconventional policy support will be announced. The Bank’s attention is likely to remain focused on measures to support bank lending and it will probably argue that its latest offer of unlimited 12-month liquidity has been particularly successful. But with the economy not yet on a clear recovery path and deflationary pressures mounting, bolder policy support might still be required in future to avert a particularly long-winded downturn.