Arab Today, arab today ecb keeps key interest rate unchanged at record low
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Arab Today, arab today
Arab Today, arab today

ECB keeps key interest rate unchanged at record low

Arab Today, arab today

Arab Today, arab today ECB keeps key interest rate unchanged at record low

London - AFP

The European Central Bank Thursday held its key interest rate at a record low of 0.25 percent, as widely expected, holding back for now on further moves to boost the struggling eurozone economy. The decision follows the ECB's surprise cut last month of the central "refi" refinancing rate by a quarter-point to counter the threat of deflation, a vicious cycle of falling prices and wages that is poison for the economy. However, the danger of a plunge into a deflationary spiral appears to have diminished as the eurozone inflation rate nudged back up to 0.9 percent in November after a sharp fall to 0.7 percent in October. "It was no surprise that the ECB chose to leave the refi rate at 0.25 percent today, but the bank remains under pressure to do more to support the eurozone?s fragile recovery," said Ben May of Capital Economics. ECB President Mario Draghi, at a press conference starting 1330 GMT, was "likely to reiterate that the ECB has not yet run out of policy ammunition and it stands ready to take further action," May said. Analysts were awaiting the ECB's updated macro-economic projections later on Thursday on growth and inflation in the 17 countries which share the euro, for this year, 2014, and in a new long-term forecast for 2015. The Frankfurt-based bank also kept its deposit rate steady, at zero percent. There had been speculation of a first ever move into negative territory, effectively a charge for banks which park their money in the central bank overnight. The ECB, by keeping its key rates unchanged, has kept some of its powder dry for possible future monetary action, amid continued concern that the flood of cheap money the central bank has provided to the market is not reaching businesses and households. Draghi at the last meeting described the deflationary dangers as very low but said that the bank was ready for further moves and has "a whole range of instruments we can mobilise if necessary". Another possible future move is for the ECB to pump more liquidity into the financial system, as it did at the end of 2011 and the beginning of 2012 using so-called long-term refinancing operations (LTROs). Like central banks in the United States, Japan and elsewhere, the ECB has used super-low rates and stimulus measures to inject liquidity into the financial system to encourage lending and thereby boost investment and consumer spending. In the United States, a recent string of upbeat economic data has fuelled expectations that the Federal Reserve may soon start cutting back on another stimulus measure, its $85 billion-a-month bond-buying scheme. May of Capital Economics pointed to ECB concerns that asset purchase tapering by the Fed could have adverse effects on certain eurozone financial institutions. "Given this, we would certainly not be shocked if President Draghi were to announce additional long-term refinancing operations (LTROs) today," he said. ECB officials have stressed that the eurozone has seen "disinflation" -- or slowing price rises -- not "deflation", where prices fall in real terms, encouraging consumers to put off purchases in hopes of further price drops. Deflation can lead to a vicious cycle of falling prices and demand, and rising unemployment. The bank's central aim is to ensure price stability and keep the inflation rate close to but below 2.0 percent.

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