European Central Bank Keeps Rates Steady

FRANKFURT, Germany (AP) —

The European Central Bank has kept its main interest rate at a record low of 0.25 percent, holding off on more stimulus as economic indicators suggest the modest recovery is gaining strength.

The central bank for the eurozone’s 18 countries made the decision Thursday at a meeting of its 24-member rate-setting council at its headquarters in Frankfurt, Germany.

Signs have increased recently that the eurozone economy’s fledgling recovery is gaining strength. Inflation has also shown signs of stabilizing, albeit at a low rate.

Markets were waiting for bank president Mario Draghi’s post-decision press conference and new economic forecasts by the ECB, particularly its inflation expectations. Some economists worry the eurozone might fall into deflation, a sustained drop in prices that can choke growth, though the ECB has said it doesn’t expect that.

Inflation in February was only 0.8 percent, well below the bank’s goal of just under 2 percent. However, the core rate, which excludes volatile food and fuel costs, rose to 1.0 percent from 0.8 percent the month before. The ECB has cautioned that it expects inflation to remain low for some time.

Analysts are waiting to see its estimate for 2016 inflation. If that estimate remains well below the ECB’s goal, it could lead the bank to further loosen its monetary policy.

Among other steps the ECB could take is cutting its deposit rate below zero, effectively penalizing banks for holding money at the ECB instead of lending it. It could also allow an increase in the amount of money in the financial system by stopping to take weekly deposits.

A more far-reaching measure would be large-scale purchases of financial assets, such as government bonds, with newly created money, as the U.S. Federal Reserve has done. But that step faces legal, political and technical obstacles in a currency union with 18 members.

To Read The Full Story

Are you already a subscriber?
Click to log in!

Hamodia Logo