Open

Coming up

Don't miss

Replay


LATEST SHOWS

ENCORE!

Alain Choquette: A Hilarious Magician in Paris

Read more

FOCUS

France welcomes Iraqi Christian refugees

Read more

FRANCE IN FOCUS

Emmanuel Macron: A new economy minister with a pro-business agenda

Read more

THE OBSERVERS

More of this year's best Observers stories

Read more

#TECH 24

Changing the world, one video game at a time

Read more

IN THE PAPERS

Socialist Party summer conference kicks off in explosive atmosphere

Read more

IN THE PAPERS

Canada and Russia exchange snarky tweets

Read more

AFRICA NEWS

Ebola in Nigeria: First death outside of Lagos

Read more

AFRICA NEWS

Niger: Top opposition figure to be questioned in baby-trafficking scandal

Read more

  • First case of Ebola confirmed in Senegal

    Read more

  • British killer escapes from French psychiatric hospital

    Read more

  • Ukraine to relaunch NATO membership bid

    Read more

  • France shines in IMF list of world’s promising economists

    Read more

  • Mapping Ukraine: Canada and Russia in ‘tweet for tat’ row

    Read more

  • Obama has 'no strategy yet' on potential Syria strikes

    Read more

  • Netflix to woo French with ‘House of Cards’ set in Marseille

    Read more

  • French businesses ‘hoping for a new Thatcher’

    Read more

  • Syrian refugees surpass 3 million, UN says

    Read more

  • West backs Ukrainian claims of Russian incursion

    Read more

  • Libyan PM resigns as Islamists set up rival administration

    Read more

  • UN says 43 peacekeepers captured in Golan Heights

    Read more

  • The deleted tweets of Manuel Valls

    Read more

  • Peru seizes record 6.5 tonnes of Europe-bound cocaine

    Read more

  • Pakistan army to mediate between PM, protesters

    Read more

  • PSG face Barcelona, Ajax in tough Champions League draw

    Read more

  • In pictures: Billions of locusts invade Madagascan capital

    Read more

  • Brad Pitt and Angelina Jolie say ‘I do’ in France

    Read more

  • Erdogan sworn in as Turkey's president

    Read more

Business Europe

ECB keeps rates unchanged and waits for March results

Latest update : 2009-02-05

The European Central Bank has kept its interest rates unchanged at 2.0%. ECB President Jean-Claude Trichet is set to give a press conference where he may say whether the ECB could go below its present all-time low next month.

AFP - The European Central Bank kept its key interest rate steady at 2.0 percent Thursday while the Bank of England cut its own benchmark rate by a half percentage point to a record low of 1.0 percent.
  
British interest rates thus remained at the lowest point since the bank was created in 1694 -- 315 years ago.
  
In Frankfurt, economists had expected the ECB governing council to pause in a cycle of rate cuts that has seen the eurozone's main lending rate fall by 2.25 points in four stages since October.
  
The ECB also left its two other reference rates -- the deposit rate and the marginal lending rate -- unchanged at 1.0 percent and 3.0 percent respectively.
  
Analysts will now focus on a scheduled press conference by bank president Jean-Claude Trichet for signs the ECB could go below its present all-time low, possibly to 1.50 percent, next month.
  
Such a decision would be underpinned by a widely-anticipated downward revision to ECB staff forecasts for inflation and growth on March 5.
  
"We expect Trichet to concede during the press conference that the recession is deepening and price pressures have receded," Capital Economics economist Jennifer McKeown said.
  
Bank of America senior economist Holger Schmieding added that Trichet could "suggest that a rate cut in March is likely but not a done deal yet."
  
In January, Trichet said that "the next important rendezvous would be in March."
  
The bank's latest decision came against a backdrop of persistently gloomy economic prospects for the 16-nation eurozone, which is in the midst of its first recession.
  
A key measure of business activity improved slightly last month, but the purchasing managers' index (PMI) compiled by data and research group Markit remained well below the 50-point level that signals contracting activity.
  
"Output could soon be falling at alarmingly rapid annual rates of close to 15 percent," a Capital Economics research note warned.
  
Trichet has already warned that the March growth outlook would probably be revised sharply lower from the current midpoint forecast of a 0.5 percent contraction.
  
The European Commission estimates that the eurozone economy could shrink by 1.9 percent this year.
  
Inflation has also fallen sharply however, to 1.1 percent, as the global economic slump contributed to a collapse in oil prices, taking it well below the ECB's target of just below 2.0 percent.
  
Inflation should bottom out later this year, with some analysts forecasting a quick dip into deflationary territory, though most agree the central bank will not follow US and Japanese counterparts by assuming a so-called zero interest rate policy, or ZIRP, in response.
  
Trichet is likely to "insist once again on the fact that the deflationary risk is low in the eurozone in the medium term so that ZIRP is of no consideration for the ECB," Natixis eurozone economist Cedric Thellier said.
  
Growing attention is being paid meanwhile to the prospects of quantitative easing, or the creation of money to buy assets, as another way for the bank to encourage economic activity, a path the US Fed is considering.
  
"The ECB could embark in some form of credit easing" other than rate cuts, suggested Nomura analyst Laurent Bilke.
  
McKeown felt the ECB "might struggle to implement non-conventional policies to reduce longer-term interest rates" however, noting that "the purchase of government debt would prove particularly tricky."
  
A second focus of observers was on how low the ECB will eventually take its benchmark rate.
  
Following a cut in March, "in time-honoured fashion, softer data on growth and inflation could then trigger a debate about further modest easing to a trough of 1.0 percent" by mid 2009, Schmieding said.
  

Date created : 2009-02-05

COMMENT(S)