ecb takes rate cuts off table as eurozone woes ease
Last Updated : GMT 11:50:41
Arab Today, arab today
Arab Today, arab today

ECB takes rate cuts off table as eurozone woes ease

Arab Today, arab today

Arab Today, arab today ECB takes rate cuts off table as eurozone woes ease

Frankfurt - AFP

The European Central Bank held its key interest rates steady Thursday and looked set to keep them there for some time to come amid signs the eurozone debt crisis is stabilising, analysts said. As widely expected, the ECB\'s decision-making governing council voted at its first policy meeting of 2013 to hold the bank\'s main refinancing rate at its current historic low of 0.75 percent. At the end of last year, there had been speculation that the ECB might pare back rates still further should the seemingly never-ending eurozone debt crisis tip the economy of the 17-member euro area deeper into recession. In fact, last month, central bank chief Mario Draghi revealed that the decision to hold rates steady had been anything but clear-cut and there had even been \"wide discussion\" of a possible rate cut. But there was no such talk this time round and the decision to maintain the status quo was \"unanimous\" in view of signs that the economic environment has calmed, he told journalists. \"If you look at the overall landscape taking, let\'s say, a medium-term perspective... you will see a significant improvement in financial market conditions and a broad stabilisation of some conjunctural indicators,\" Draghi said. Among a long list of positives, he pointed to lower bond yields, higher stock prices, record-low volatility, strong capital inflows into the eurozone, a halt of deposit flight in peripheral countries and a reduction of the ECB\'s balance sheet. In fact, both Italy and Spain saw their borrowing costs tumble in their first sovereign bond sales of 2013 on Thursday. \"All in all, we have signs that fragmentation is being gradually repaired,\" Draghi said. But he was quick to caution: \"The jury is still out. It\'s too early to claim success. All this has not found its way into the real economy yet. So the real economy continues to be weak as we had discussed in our projections last month.\" Nevertheless, while last year the overriding fear had been one of \"contagion\" and that the crisis would deepen and spread, there was also \"positive contagion when things go well,\" Draghi said. ECB watchers agreed that the likelihood of additional rate cuts is fading. \"A rate cut seems very unlikely in the foreseeable future,\" said Marie Diron at Ernst & Young Eurozone Forecast. A rate cut would not help a great deal and could even hinder the banks\' profitability, Diron said. \"Other measures are needed to spur growth in the eurozone, including further progress on banking union and a rebalancing between fiscal austerity and economic reforms,\" she said. For IHS Global Insight analyst Howard Archer, the ECB \"appeared to close the door to an interest rate cut in the near term at least.\" \"Nevertheless, we still think it is more likely than not that the ECB will end up cutting interest rates from 0.75 percent to 0.50 percent,\" Archer argued, pointing out that the ECB acknowledges the economic weakness will continue in 2013 and that the risks were to the downside. Berenberg Bank economist Christian Schulz said Draghi \"made clear that the ECB does not want to cut interest rates at the next meetings. It may be unhappy with the current economic situation of the eurozone, but optimism about the future is growing.\" ING Belgium economist Carsten Brzeski said the ECB \"is obviously still enjoying the magic\" of its controversial bond-buying programme, known as OMT. Looking ahead, however, the ECB \"has run out of options to stimulate the real economy. This means that while enjoying the magic, the ECB will secretly keep its fingers crossed, hoping that better financial market conditions and structural reforms eventually really lead to an economic recovery,\" Brzeski said.

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