FRANKFURT -- The European Central Bank indicated on Wednesday that its monetary policy was unchanged despite turmoil on financial markets, a move some analysts saw as signalling it still intends to raise rates in September.
The ECB made the comment in an announcement of plans to add 40 billion euros in three-month funds to the euro money market on Thursday, in an effort to help markets hit by the credit market turmoil.
The ECB noted with its tender announcement that ECB President Jean-Claude Trichet had expressed the Governing Council's monetary policy stance on Aug. 2, when it last decided interest rates.
"This operation is a technical measure aimed at supporting the normalisation of the functioning of the euro money market. It is conducted in addition to the regular monthly longer-term refinancing operations, which remain unaffected," the ECB said.
"The position of the Governing Council of the ECB on its monetary policy stance was expressed by its President on 2 August 2007," it added.
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On Aug. 2 Trichet signalled that the ECB was likely to raise interest rates at its September meeting, but market turbulence since then had made many analysts speculate that it might change its mind.
The reminder of Trichet's comments in the ECB's tender announcement changed some analysts' views.
"It looks like a rate hike at the September ECB meeting is now back on the cards following the reiteration that the policy stance is the same as that expressed by Trichet on Aug 2," said Divyang Shah, chief strategist at CBA Europe.
"The deliberate choice of including that sentence suggests to us that the Council continues to view the chances of a rate increase in September as high," said Jacques Cailloux, economist with RBS.
The September Bund future fell as low as 113.13, more than 60 ticks down on the day, while Euribor interest rate futures sank up to 16 basis points across the 2007-2008 strip.
Bids for the tender of 91-day funds are due by 0730 GMT on Thursday. The ECB said it would be a variable rate tender, but did not specify a minimum bid rate.
The ECB said it would offset the extra 40 billion euros liquidity added to the 3-month market in its regular weekly tender of 7-day funds, to the extent that overall liquidity conditions allowed.
Large ECB cash injections have brought down interest rates in the euro overnight interbank market, but banks' risk aversion has kept 3-month rates high.
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