August 23, 2007	Thursday	Sha’aban 9, 1428

FRANKFURT, Aug 22: The European Central Bank reminded markets of its Aug 2 monetary policy stance on Wednesday, in a move that some analysts saw as signalling it intends to raise rates in September despite market turbulence.

“The position of the Governing Council of the ECB on its monetary policy stance was expressed by its President on Aug 2,” the ECB said.

The statement came as part of a surprise announcement that the ECB would auction 40 billion euros in three-month financing to money markets on Thursday, on top of regular funds. The decision to add extra funds was agreed in writing by the ECB’s entire Governing Council.

Unlike its weekly refinancing tenders, the ECB’s monthly auctions of three-month liquidity are geared to ensuring banks have enough funding rather than implementing its monetary policy decisions.

Nonetheless some analysts interpreted the reference to the ECB’s Aug 2 policy stance as meaning that the ECB’s Governing Council had not changed its view on rates despite heavy share price falls and tightening credit conditions since then.

Helped by a rebound in equity markets, yields on two-year euro-zone bonds -- the most sensitive to short-term interest rate moves -- looked set to post their biggest one-day jump in over three years, popping back over the ECB’s four per cent refinancing rate.

ECB President Jean-Claude Trichet said on Aug 2 that “strong vigilance” was needed on inflation dangers -- ECB code that a rate rise would likely take place the following month.

But he also stressed the ECB was not pre-committed to raising rates, highlighted market volatility and declined to comment directly on the likelihood of raising interest rates to 4.25 per cent from their current four per cent. —Reuters