Arab Today, arab today ecb to keep powder dry on rates despite jobless spike
Last Updated : GMT 10:09:25
Arab Today, arab today
Arab Today, arab today

ECB to keep powder dry on rates despite jobless spike

Arab Today, arab today

Arab Today, arab today ECB to keep powder dry on rates despite jobless spike

Frankfurt - AFP

The European Central Bank will likely keep rates at an all-time low at its first meeting of the year on Thursday, analysts said, despite record high unemployment in the recession-wracked eurozone. However, economists expect ECB chief Mario Draghi to keep open the door for further rate cuts to support the 17-nation euro area, especially if the economy takes another turn for the worse or the debt crisis strikes the markets again. \"A rate cut or any other action by the ECB on Thursday would come as a surprise to us, despite low inflation, recession and high unemployment,\" said Christian Schulz at Berenberg Bank. \"Leaving the door open to more action is important to reassure markets that the ECB remains ready to act if necessary,\" added the economist. Draghi already told reporters after the last meeting in December that the 23-member board of the ECB had held a discussion on the merits of cutting rates but decided in the end to hold them at the record low 0.75 percent. Since then, the eurozone economy has thrown up a mixed bag of data for ECB governors to chew over. Unemployment has reached a record high of 11.8 percent, according to official figures, with nearly 19 million people without work in the embattled single currency zone. Nevertheless, there were also tentative signs of recovery, with some forward-looking data providing encouragement. Last week, the closely watched Purchasing Managers Index or PMI for the entire euro area hit a nine-month high, offering hope the single currency area could be moving out of its deep double-dip recession. Recent business confidence data for Germany, Europe\'s biggest economy, have also come in better than expected. Marco Valli from UniCredit bank said there had been \"a modest improvement in growth indicators and ongoing positive developments in financial markets, both of which are likely to convince the ECB to remain in wait-and-see mode\". After Draghi calmed markets with his pledge in July to do \"whatever it takes\" to preserve the euro, borrowing costs for countries like Spain and Italy have plunged to still high but more manageable levels. Spain now pays just over 5.0 percent to borrow for 10 years on the open market, while Italy pays just over 4.0 percent. But Draghi will for now be unwilling to cut rates to boost the economy for fears of slackening the pressure on these countries -- and the eurozone as a whole -- to reform and become more competitive, analysts forecast. Analysts at Commerzbank noted markets have not positioned themselves for a rate cut until at least September. And after a historic 2012 during which the ECB broke new monetary policy ground by pledging to buy the bonds of struggling countries under certain conditions, analyst Carsten Brzeski from ING bank said this year would be calmer. \"It looks unlikely that in 2013 the ECB can provide another game changer for the euro crisis like the OMT programme last year,\" said the economist, referring to the bank\'s bond-buying plan. The ECB \"wants to keep its powder dry for as long as possible ... in our view, only a renewed worsening of the economy could trigger another rate cut in the course of 2013,\" said Brzeski.

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