Arab Today, arab today ecb to hold fire on rates at final meeting of 2012
Last Updated : GMT 08:24:08
Arab Today, arab today
Arab Today, arab today

ECB to hold fire on rates at final meeting of 2012

Arab Today, arab today

Arab Today, arab today ECB to hold fire on rates at final meeting of 2012

Frankfurt - AFP

The European Central Bank will hold fire on interest rates at its last policy meeting of 2012 Thursday, even if its updated forecasts will suggest the eurozone\'s recession is deepening, analysts said. With ECB interest rates already at record lows and its latest anti-crisis weapon primed and ready for action, chief Mario Draghi has never ceased to argue that the ball is in the court of the governments to find a way out of the long-running crisis. And while many ECB watchers believe there is room for additional monetary easing, none of them see the bank cutting its key refi rate below its current level of 0.75 percent at Thursday\'s meeting in the Eurotower headquarters. \"The ECB is highly unlikely to cut interest rates. It has explained before that it thinks such a cut would have no impact on the economy as the transmission mechanism remains impaired,\" said Marie Diron at Ernst & Young Eurozone Forecast. There is some debate on the effectiveness of further monetary easing since the rate cuts so far have not been feeding through to the countries that would benefit from them most, notably the debt-wracked countries. Diron said she would look out for changes in the ECB\'s growth and inflation forecasts, updates to which are also to be published on Thursday. \"We have long held the view that the eurozone would broadly stagnate for a second consecutive year in 2013. The ECB is likely to revise down their projections towards a similar forecast,\" Diron said. Back in September, ECB staff already slashed their forecast for growth in the eurozone for both this year and next, pencilling in a contraction of 0.4 percent this year followed by modest growth of 0.5 percent in 2013. Berenberg Bank economist Christian Schulz said the ECB was facing a dilemma. \"The eurozone economy is in recession, inflation is falling sharply and unemployment reaching new highs. This may warrant further monetary stimulus,\" he said. \"At the same time, resistance to further stimulus in key core countries such as Germany is strong. In these circumstances, the ECB is likely to leave rates unchanged,\" Schulz predicted. UniCredit economist Marco Valli agreed, but he suggested that, unlike last month when no cut was discussed at all, the decision to leave rates unchanged \"is unlikely to be unanimous and some governing council members will probably favour a quarter-point cut in the refi rate.\" \"The ECB still seems to have doubts that another rate cut could really kick-start growth,\" said ING Belgium economist Carsten Brzeski. Indicators and data released since the last rate-setting meeting have provided clear evidence that the eurozone economy is still in recession, so the window of opportunity for a rate cut was still open, the analyst said. \"However, as long as the transmission mechanism of monetary policy is not fully functioning, the ECB will remain hesitant to use its last ammunition and would rather consider further unconventional measures,\" he argued. Nevertheless, the ECB\'s job \"is still not done,\" he insisted. \"At some point in time, the ECB will have to prove that the new bond buying programme -- the OMT -- is more than only an illusionary giant. Moreover, if the current tentative signs of stabilisation turn out to be a false start, even a rate cut is still possible,\" Brzeski said. But he concluded: \"At this week\'s meeting, the ECB will try everything to not ruin the current calm pre-Christmas atmosphere.\"

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Arab Today, arab today ecb to hold fire on rates at final meeting of 2012 Arab Today, arab today ecb to hold fire on rates at final meeting of 2012

 



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