The European Central Bank has held its main borrowing rate steady at 1% for the fourth month, with ECB President Mario Draghi pointing to a “stabilisation of the financial environment”. The bank also kept its overnight borrowing and deposit rates steady at 1.75% and 0.25%, respectively. Speaking to reporters after the monthly meeting of the bank’s decision-making Governing Council, on 4 April, Draghi said that two emergency three-year loans that injected a trillion euro worth of liquidity into European banks had helped to avoid “an abrupt and disorderly adjustment in the balance sheets of credit institutions”.

However, he said that talk about ending the bank’s extraordinary crisis lending was “premature” given the latest growth and unemployment figures. Unemployment reached a eurozone high of 10.8% last month, Eurostat said, while GDP decreased by 0.3% in the last quarter of 2011. Inflation was 2.6% in March, well above the ECB’s target of 2% or less. Draghi said the three-year loans, know as long-term refinancing operations (LTROs), needed time to take effect but that they offered breathing space for governments and banks to make much-needed reforms.

“It is a window opportunity for governments to undertake both fiscal consolidation and structural reforms taking benefit form this sort of relative peace on financial markets,” he said of the LTROs. “But it’s also a window opportunity for banks to repair their balance sheets to deliver what they owe in an orderly fashion,” he said. According to Draghi, the success of the programme would be measured by increases in bank deposits, purchases of government bonds and loans to businesses. ECB data show that bank deposits grew in January and February, but lending to private companies and consumers has stagnated, growing by just over 1% year-on-year and stagnating when measured month-on-month. Draghi denied that banks were addicted to ECB funding, saying that the bank was offering them only liquidity in the form of loans and not capital injections. “We don’t see any sign that banks are being addicted to the ECB,” he said. “Let’s keep in mind that this is not capital – this is liquidity that we provide banks with. If a bank doesn’t have capital [it] better raise it now.”

Meanwhile, Draghi denied that recently rising spreads on Spanish and Italian bonds were a sign of market instability. Spain managed to raise more than €2 billion, on 4 April, but paid more than it had for similar bonds last year. The auction comes the day after Spanish Finance Minister Luis de Guindos outlined the details of a €27 billion austerity plan to the parliament in Madrid. “I would read the recent developments not so much as an example of market fragility but simply as an example that markets are expecting reforms,” Draghi said. “They are asking these governments to deliver.”