Euro zone interest rates to remain at 1 per cent for the rest of the year
Charlot Zahra
The Governing Council of the European Central Bank (ECB) is expected to hold its base rate for the third month running at the level of 1.00 per cent tomorrow.
A month ago, as expected, the ECB left its monetary policy unchanged. Since May, the ECB had kept its key policy interest rate at a historical low of 1 per cent.
The ECB’s July meeting saw ECB President Jean-Claude Trichet declaring then that ‘the current rate was appropriate’. Ahead of the meeting, consensus estimates suggest the Central Bank will again leave rates unchanged, although adjustments to quantitative easing measures may occur.
Analysts agreed that despite some positive signs of economic stabilisation, the ECB remained “cautious over the outlook and is unlikely to change its forecast for GDP and inflation.
“We expect the ECB to keep its main interest rate unchanged through the rest of the year,” a note circulated by international credit rating agency Moody’s last Friday warned.
Earlier, in a recent interview with global business news service Bloomberg, Central Bank of Malta (ECB) Governor Michael C. Bonello said that he was “satisfied” with current the ECB policy settings, which see benchmark interest rates at a record low of 1 per cent.
“We believe that our policy stance is correct at the moment,” Bonello had said. “We have addressed the problem that there was in the money market and interest rates have come down. So from that point of view we are satisfied,” the CBM Governor was quoted as saying.
While Trichet had left the door open to more rate reductions, Bonello dismissed these suggestions. “There hasn’t been any discussion on lowering interest rates further,” Bonello had told Bloomberg.
Since the beginning of 2009, there had been four interest rate cuts, with a total decrease of 1.5 per cent in the bank’s key policy rate within in the space of five months.
However, it was likely to take some time before it became clear if the liquidity injection was working as the ECB intended and banks were increasing the number of loans they make.
Data published towards the end of June had showed that growth of loans to the private sector in the euro zone eased in May but analysts said that while the data might worry the ECB, it was not clear why lending was falling.
At 1 per cent, the ECB’s main rate remained higher than those of other major Central Banks globally. The US Federal Reserve’s target policy rate was between zero and 0.25 per cent, the Bank of Japan’s interest rate stood at 0.1 per cent and the Bank of England’s at 0.5 per cent.
