ECB, BoE leave interest rates at record lows
FRANKFURT — The European Central Bank on Thursday left its key interest rate unchanged at a record low of 1 percent and indicated it wouldn’t raise it in the near future — even as bank president Jean-Claude Trichet said the worst of the recession has passed.
The move followed the Bank of England’s decision to keep its benchmark rate unchanged at a record low of 0.5 percent and to hold off from further moves to increase monetary stimulus — for now.
At a news conference following the ECB’s rate decision, Trichet said there have been growing signs since the second quarter that the economy of the 16-nation eurozone is out of its “freefall.”
“We have signs of stabilization. We are out of the free-fall,” Trichet said. “We have to be cautious. We have to be prudent.”
Official figures have already shown that Germany and France, the eurozone’s two largest economies, are technically out of recession. However, the eurozone’s recovery is not expected to make up for the last 12 months’ lost output — even though the region is expected to have grown in the third quarter. The International Monetary Fund is still forecasting a 4.2 percent contraction in output for 2009 as a whole.
“The recovery will remain uneven, affected by balance sheet corrections in the financial and non-financial sectors in and outside the euro area,” Trichet said.
He said the European Central Bank was expecting inflation to turn positive in the next few months but that inflation expectations remained “well-anchored” — a sign the bank does not see an inflationary threat yet from the modest upturn. Expectations of higher inflation would push the bank toward raising interest rates.
His comments about the need for caution about growth suggest the bank is still a long way from rate increases, which economists do not expect until next year.
He repeated his calls for government to have strategies for an exit by 2011 from the large economic stimulus measures of recent months such as deficit spending and that countries must address their future spending policies.
“The need for ambitious and realistic fiscal exit and consolidation strategies is becoming increasingly pressing,” said Trichet.
Trichet repeated concerns about the export-sapping appreciation of the euro against the dollar. The euro is not far off a year-high against the dollar.
Trichet cited the recent joint statement from the Group of Seven finance ministers and central bankers.
He said the ECB continues to monitor exchange markets closely and added that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.
Trichet welcomed the U.S.’s support for a “strong dollar” policy — some in the markets think the U.S. has been operating a policy of benign neglect towards its currency over recent months in an attempt to boost exports.
Trichet currency comments “were nothing new and we doubt that they will be sufficient to reverse the current near term trend of dollar weakness,” Wells Fargo said.
The euro bought $1.4755 in European afternoon trading, up from the $1.4666 late Wednesday in New York.
In London, in addition to keeping its main interest rate unchanged at 0.5 percent, the Bank of England also held off from any further moves to expand the money supply for the time being.
Both those decisions were widely expected but the Bank of England said it would keep its asset purchase program — known as quantitative easing — “under review.”
At present, the BoE can buy up to 175 billion pounds ($281 billion) of financial assets, such as government bonds, from the banks. The aim of the policy is to increase the money supply in the hope that eventually the banks will start lending more to the private sector.
“The committee expects the announced program to take another month to complete. The scale of the program will be kept under review,” the BoE said.
The BoE will have to decide whether a recovery is indeed under way, thus requiring no expansion of quantitative easing — its policy to increase the amount of money in the economy.
The banks’ decisions come days after disappointing industrial production data for August fueled fears that the British economy won’t return to growth in the third quarter.
Following the industrial data, the National Institute for Economic and Social Research, a leading independent forecaster, estimated that the British economy didn’t grow in the third quarter.
Associated Press Writer Robert Barr reported from London.
On the Net:
www.ecb.int
www.bankofengland.co.uk
Related News
European Central Bank, Bank of England set to keep interest rates at record lowsOctober 8th, 2009 European rates set to stay at record lowsLONDON — Europe's two leading central banks are expected to keep interest rates unchanged Thursday and damp down any talk that borrowing costs will soon rise in the wake of a surprise rate hike by Australia's central bank. Analysts say the European Central Bank, which controls monetary policy for the 16 countries that use the euro, and Britain's Bank of England will keep benchmark interest rates unchanged at historic lows of 1 percent and 0.5 percent.
European Central Bank leaves main interest rate unchanged at 1 percentOctober 8th, 2009 ECB leaves rates unchangedFRANKFURT — The European Central Bank left its key interest rate unchanged at 1 percent on Thursday. Analysts had widely expected the bank to hold rates steady at its meeting in Venice.
European Central Bank, Bank of England leave interest rates unchangedOctober 8th, 2009 ECB, BoE leave interest rates unchangedFRANKFURT — The European Central Bank and the Bank of England both left their key interest rates unchanged Thursday at record lows. The ECB left its main refinancing rate at 1 percent while the Bank of England left its rate at 0.5 percent.
Dollar edges higher against major currencies ahead of ECB, BoE interest rate decisionsOctober 7th, 2009 Dollar climbs ahead of ECB, BoE rate decisionsNEW YORK — The dollar edged higher against major currencies Wednesday as investors looked ahead to upcoming European Central Bank and Bank of England interest rate decisions on Thursday. The 16-nation euro slipped to $1.4666 in New York trading from $1.4710 late Tuesday, while the British pound fell to $1.5876 from $1.5911.
Amid signs of improving economy, ECB keeps rate unchanged at 1 pctSeptember 3rd, 2009 European Central Bank keeps rate steadyFRANKFURT — The European Central Bank has left its benchmark rate unchanged at 1 percent as markets wait for word that it may raise its economic forecasts. The ECB, which sets interest rates for the 16 countries that use the euro, will explain its decision at a press conference later Thursday.
ECB holds steady at 1 percent; BoE keeps rate steady, expands purchase programAugust 6th, 2009 ECB, BoE keep rates unchangedFRANKFURT — The European Central Bank has left its benchmark interest unchanged at 1 percent, a record low. The decision Thursday came after the Bank of England left its own rate unchanged at 0.5 percent and announced it would expand its asset purchases aimed at increasing the money supply.
European Central Bank, Bank of England keep rates steady; Britain to expand monetary easingAugust 6th, 2009 European, British rates unchangedFRANKFURT — The European Central Bank and Bank of England left interest rates unchanged Thursday at record lows amid early signs of economic recovery but took different paths in efforts to increase money supply and boost growth. The Bank of England kept its interest rate at 0.5 percent and the ECB left its at 1 percent.
Bank of England expands asset purchases to increase money supply, keeps rates at 0.5 percentAugust 6th, 2009 Rates unchanged, but BoE adds monetary easingLONDON — The Bank of England is keeping official interest rates at a record low of 0.5 percent — but it is expanding its program to expand the money supply by 50 billion pounds to 175 billion pounds. With recent signs of an economic recovery on the horizon, the extension of the so-called quantitative easing program announced by the bank on Thursday indicates it remains cautious about those early indicators.
India central bank leaves interest rates unchanged, says economic growth could beat forecastsJuly 28th, 2009 India central bank says economy could grow fasterNEW DELHI — India's central bank left interest rates unchanged Tuesday and said Asia's third-biggest economy could grow faster than forecast as it emerges from the global credit bust. Bank Gov. D. Subbarao said "the global economy was showing incipient signs of stabilization, albeit not recovery."
The central bank said there is now "an upward bias" to its forecast for the economy to grow 6 percent in the year ending March 2010.
Japan's central bank keeps key interest rate at 0.1 percentJuly 15th, 2009 Japan's central bank keeps rates steadyTOKYO — Japan's central bank has kept its benchmark interest rate steady amid signs that the economy has ended its slide. The Bank of Japan's eight-member policy board voted unanimously to leave its overnight call rate target unchanged at 0.1 percent, as widely expected by the market.
European Central Bank keeps interest rate at 1 percent amid recessionJune 4th, 2009 European Central Bank keeps rates unchangedFRANKFURT — The European Central Bank kept its main interest rate unchanged at a historic low of 1 percent on Thursday amid a deeper than anticipated recession. The ECB's decision to keep the refinancing rate on hold for the 16 nations that share the euro was in line with expectations after the bank indicated last month it did not intend to make further cuts in the near term.
Dollar gains as ECB, BofE leave interest rates unchangedJune 4th, 2009 Dollar gains as ECB, BofE leave rates unchangedNEW YORK — The dollar moved higher Thursday after the European Central Bank and Bank of England both left interest rates unchanged, as expected. The 16-nation euro dropped to $1.4128 in early New York trading from $1.4134 late Wednesday.
Bank of England holds interest rates at 0.5 pct; maintains policy to increase money supplyJune 4th, 2009 Bank of England keeps interest rates at record lowLONDON — The Bank of England has kept official interest rates at a record low of 0.5 percent and maintained its policy of increasing the money supply to the economy. With early — but tentative — signs of an economic recovery on the horizon, the bank's decision on Thursday represents a cautious stance.
Iceland's central bank lowers interest rates by 2.5 percentage points to 13 percentMay 9th, 2009 Iceland cuts interest rates to 13 percentLONDON — Iceland's central bank has cut official interest rates by 2.5 percentage points to 13 percent to help the country's troubled economy. It is the third cut in rates this year by the central bank, called Sedlabanki.
Bank of England holds interest rates steady at 0.5 percent; increases asset purchase programMay 9th, 2009 Bank of England increases asset purchase programLONDON — The Bank of England has kept official interest rates on hold at a record low of 0.5 percent — but has increased its program to buy back assets to increase the domestic money supply. At the end of its monthly rate-setting meeting on Thursday, the bank said it is increasing the size of its so-called quantitative easing program by 50 billion pounds ($75.4 billion) to 125 billion pounds.
Loading ...