Tags: ECB | Europe | Economy | Bank

European Central Bank Keeps Rates on Hold

Thursday, 06 Nov 2014 08:17 AM

The European Central Bank has kept its main interest rate unchanged at a record low of 0.05 percent, leaving investors waiting for President Mario Draghi's news conference for hints about whether the bank will ramp up its stimulus measures.

Thursday's rate decision was expected, mostly because the ECB has said it has already lowered the benchmark refinancing rate about as low as it can go.

The ECB has slashed interest rates, offered cheap loans to banks, and started buying bonds based on bank loans — all aimed at increasing the flow of credit to businesses so they can expand and hire people.

Analysts think Draghi will underline the ECB's willingness to intensify its stimulus efforts if things get significantly worse. So far, the ECB has held off large-scale purchases of bonds aimed at pumping newly created money into the economy — a step used by the U.S. Federal Reserve, Bank of Japan and Bank of England.

The 18 countries that use the euro saw no growth at all in the second quarter, and few economists think figures for the July-September period will be much better when they are released on Nov. 14. The currency union is struggling to recover from a debt crisis that has led governments to cut spending and raise taxes, hurting growth and leaving unemployment at a high 11.5 percent. Low inflation has people worried the eurozone may slip into deflation, a chronic downward price spiral that kills growth.

The biggest weapon left would be large-scale bond purchases, called quantitative easing or QE, similar to the ones the U.S. Federal Reserve ended last week. The Bank of Japan last week stepped up its own purchases.

QE however is not as easy a call in Europe as it was in Japan and the U.S. For one, it's more complicated to buy government bonds in an 18-country currency union. It also faces opposition among many officials and economists in Germany, the eurozone's dominant political and economic force. One reason is that they think QE could ease pressure on governments in weaker countries to reduce bureaucracy and make their economies more business friendly and encourage growth.

Skeptics include Jens Weidmann, the head of Germany's Bundesbank central bank and a member of the ECB's rate-setting council.

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The European Central Bank has kept its main interest rate unchanged at a record low of 0.05 percent, leaving investors waiting for President Mario Draghi's news conference for hints about whether the bank will ramp up its stimulus measures.Thursday's rate decision was...
ECB, Europe, Economy, Bank
373
2014-17-06
Thursday, 06 Nov 2014 08:17 AM
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