Arab Today, arab today ecb rates can go lower if economy deteriorates
Last Updated : GMT 05:43:04
Arab Today, arab today
Arab Today, arab today

ECB rates can go lower if economy deteriorates

Arab Today, arab today

Arab Today, arab today ECB rates can go lower if economy deteriorates

Frankfurt - AFP

European Central Bank chief Mario Draghi suggested Thursday that interest rates could fall further from their current record lows should the economic outlook deteriorate for the euro area. At its regular monthly policy meeting, the ECB\'s governing council voted to keep key rates unchanged at an all-time low of 0.5 percent, as expected. But Draghi was convinced that the 17-nation bloc\'s economy appeared to be stabilising. \"Recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity,\" he said. Nevertheless, \"the risks surrounding the economic outlook for the euro area continue to be on the downside,\" he warned, pointing to uncertain global money and financial market conditions. These \"may have the potential to negatively affect economic conditions,\" Draghi said. Also potentially harmful to the economic outlook was the possibility that domestic and global demand could turn out weaker then expected and if governments dragged their feet on much-needed economic reforms, he said. The ECB policy of ultra-low interest rates would \"provide support to a gradual recovery in economic activity in the remaining part of the year and in 2014,\" Draghi said. And \"looking ahead, our monetary policy stance will remain accommodative for as long as necessary. The governing council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time,\" Draghi said. The ECB pared back its key interest rates to a new all-time low of 0.5 percent in May. And at the beginning of July, Draghi pledged to keep them low for as long as necessary or even cut them still further if the need arose. The comments were seen by some economists as a \"mini-revolution\" in the ECB\'s communication policy, since it has never issued such \"forward guidance\" until now. IHS Global Insight economist Howard Archer noted that this time round Draghi had not really fleshed out his comments from last month. The ECB chief did confirm that the ECB was looking into publishing the minutes of its meeting to increase transparency but would not decide on what format this should take until the autumn largely due to the need to ensure that the independence of governing council members is not compromised. \"The message coming from the ECB therefore is that eurozone interest rates are not going to rise for some considerable time to come, and that recent signs that the eurozone has stopped contracting and could well start growing marginally over the second half of this year has not changed the interest rate outlook,\" Archer said. Commerzbank chief economist Joerg Kraemer believed that the likelihood of further rate cuts had decreased. Berenberg Bank chief economist Holger Schmieding agreed. \"Some comments Draghi made at the press conference can be seen as modestly hawkish, in the sense that they may dampen residual rate cut hopes,\" Schmieding said. He had revealed, for example, that a rate cut was not discussed at the meeting on Thursday. Draghi also indicated that the ECB would not repeat the forward guidance month after month. Schmieding said he expected the eurozone economy to gradually firm over time. \"If so, the ECB will probably raise rates in the autumn of 2014. But the ECB will likely maintain its current easing bias ... well into 2014.\" On the subject of the publication of the minutes, Marie Diron at EY Eurozone Forecast said there was \"remarkably little news on this other than that this topic will be discussed in the autumn. \"So those expecting some radical change in the wake of a broad-based review of central banks\' communication strategies in the eurozone but also the UK and the US will be disappointed,\" Diron said.

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