World News

Saturday 12 July 2014

ECB keeps interest rate unchanged

Published 05/12/2013|15:01

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Mario Draghi, president of the European Central Bank, revealed the ECB has cut its inflation forecast for next year (AP)

The European Central Bank (ECB) has left its key interest rate unchanged but cut its inflation forecasts, suggesting the eurozone's recovery will remain weak.

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The chief monetary authority left its benchmark rate at 0.25% at its monthly meeting, following a surprise quarter-point cut last month.

At a news conference, president Mario Draghi said the bank had cut its forecast for inflation next year, to 1.1% from 1.3% previously. It expects that rate to rise to only 1.3% in 2015, far below the ECB's aim to keep inflation close to but below 2%.

The ECB nudged up its growth forecast for next year, to 1.1% from 1.0 % previously, after an expected contraction of 0.4% this year.

Mr Draghi said the ECB would keep interest rates low for the foreseeable future, but did not offer any alternative stimulus, such as cheap loans to banks.

He said, however, that the ECB was "able and ready to act" with new measures if needed. "Our level of preparedness is pretty high on all of them," he said.

The refinancing rate determines what banks pay to borrow from the ECB and influences borrowing costs for businesses and consumers. In theory, a cut in the rate means lower market rates that allow businesses to borrow more easily so they can invest in new production and create jobs.

But some banks are unwilling to lend at those low rates because they are worried about the economy and focused on fixing their own finances.

Other ways to stimulate the economy include giving cheap, long-term loans to banks.

The ECB could also push the deposit rate it pays banks from zero into negative territory. Mr Draghi said there had been a "brief discussion" of a negative rate at Thursday's meeting.

Press Association

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