News Column

ECB Keeps Rates at Historic Low While Waiting for Recovery

June 6, 2013
declining euro

The European Central Bank left interest rates on hold Thursday at their historic low of 0.5 per cent as it waits to see if the 17-member eurozone will pull itself out of recession.

The Frankfurt-based decision came after it delivered a 25-basis-point reduction at its meeting four weeks ago.

Since then, data has shown annual consumer prices rising, to 1.4 per cent, but still within the ECB's annual inflation target range of below but close to 2 per cent.

Analysts say this could give the bank room to launch a new round of monetary action, including both a rate cut and measures to boost bank liquidity, should the eurozone fail to return to growth later in the year.

A slew of key economic indicators have raised hopes that the currency bloc's long-running recession might be slowly coming to an end.

The European Commission said last month that its closely watched economic sentiment indicator had rebounded to 89.4 points in May, after falling to 88.6 points in April.

Despite record high unemployment, consumer confidence in the currency bloc is now at its highest level in nearly a year.

The ECB's decision followed the announcement by the Bank of England in London that it had also left rates unchanged at 0.5 per cent and its quantitative easing program at 375 billion pounds (579.1 billion dollars).

The eurozone should stage "a very gradual recovery" later in the year, helped along by the ECB's accommodative monetary policy and a pickup in foreign demand, bank chief Mario Draghi again said this week.

Draghi was expected to unveil the bank's latest inflation and economic growth forecasts at a press conference later Thursday.

He was also likely to face questions from reporters about German-led resistance to a key part of the region's proposed banking authority, which is to be part of the ECB's operations.

Both the ECB and the European Commission see the formation of the banking union, which would include a fund for rescuing troubled banks, as a crucial step in helping stabilize the eurozone.

Last week, France joined Germany in calling for national bank authorities to retain the leading role in bailing out eurozone banks.

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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