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ECB keeps rates low as Ukraine casts cloud over Europe

August 8, 2014

The European Central Bank (ECB) held borrowing rates on Thursday as it pinned its hopes on lending measures to bolster a struggling eurozone economy facing further damage from the Ukraine conflict.

Having cut interest rates to record lows in June, the eurozone's central bank kept them steady, waiting to see whether schemes such as the ultra-cheap four-year loans to banks it will launch in September will prompt them to lend more.

The decision by the ECB's Governing Council, with representatives from the 18 countries that use the euro, had been expected by economists.

Elsewhere, the number of Americans filing new claims for unemployment benefits unexpectedly fell for the previous week, pointing to a further strengthening of labor market conditions. The four-week average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 4,000 to 293,500, the lowest level since February 2006.

And the Bank of England (BoE) kept interest rates at their record low on Thursday, giving Britain's fast economic recovery more time to build even as differences among its policymakers become more apparent. The BoE's Monetary Policy Committee left Bank Rate at 0.5 per cent, the level it has maintained since the depths of the financial crisis more than five years ago.

European Central Bank President Mario Draghi said the crisis in Ukraine represented a risk to the eurozone economy, although the likely impact of European sanctions on Russia and retaliatory measures was uncertain.

"Our risks to the recovery were on the downside to begin with, and certainly one of these risks would be the geopolitical developments," Draghi told a news conference.

The European Union has imposed sanctions targeting Russia's banking, defence and energy sectors because of Moscow's support for pro-Russian separatists in eastern Ukraine, while Russia has banned fruit and vegetable imports from the European Union.

Draghi said it was hard to assess the likely impact of a crisis at the beginning, adding that "if one looks at the figures for trade or financial flows, they would by and large reveal a picture of very limited interconnections". He said only a handful of major European financial institutions were especially exposed to Russia. "However, it's very hard to assess what the actual impact is going to be once sanctions on one side and counter-sanctions on the other side are going to be undertaken."

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Source: Khaleej Times (United Arab Emirates)

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