ECB Says Reports of Rate-Capping Misleading

August 20, 2012 7:55 AM EDT Send to a Friend
The ECB today came out with a statement in response to reports that the central bank is considering yield limits on debt in stricken EU countries. To put it bluntly, the ECB says the reports are "misleading".

Originally reported by German newspaper, Spiegel, the rumors said that the ECB would set yield limits on debt in each country in which it intervenes. The report also says the ECB may print money as needed to drive down rates and insure that interest rates in the euro zone do not drift apart.

The ECB didn't say directly that it will not engage in these actions. It simply said it was "wrong" to speculate on such interventions since talks haven't yet taken place.

A plan of this nature would not be out of the norm. While not specifically setting a hard "cap", the U.S. Federal Reserve is targeting long or short term debt to drive down interest rates. Also, in 1951 the U.S. Fed did have hard caps on government debt. The Fed maintained a ceiling of 2-1/2 percent on long-term Treasury bonds for nearly a decade.




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