Business World

Wednesday 19 December 2018

ECB keeps key interest rate at historical low of 0.25pc

Mario Draghi, President of the European Central Bank,
Mario Draghi, President of the European Central Bank,

The European Central Bank has left a key interest rate steady at the historical low of 0.25pc despite a fall in inflation to its lowest level in more than four years.

Policymakers had been willing in recent weeks to publicly broach cutting deposit rates below zero - effectively charging banks to hold cash with the ECB - or embarking on bond purchases as the United States, Japan and Britain have.

Ahead of the decision, there has been little sense that a majority of officials favours imminent use of any of those tools even though inflation has been below 1pc for six months.

Instead most may preferred to keep such policies on standby in case of an external economic shock.

"Policy rhetoric should lean in the direction of dovish. But it is unlikely that current economic and market conditions meet the watermark for ECB action," said Lena Komileva, managing director of G+ Economics.

News on Monday that annual inflation in the 18-member euro zone fell to 0.5pc appeared insufficient to prompt action, despite concerns among some economists that the bloc risks slipping into a spiral of sinking prices and meagre growth.

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