ECB leaves rates unchanged despite renewed eurozone fears

DPA Frankfurt | Updated on July 04, 2013 Published on July 04, 2013

The European Central Bank left interest rates on hold at an historic low of 0.5 per cent on Thursday, despite signs of renewed tensions across the eurozone.

ECB chief Mario Draghi is expected to use his press conference, set down for 1230 GMT, to rule out moves for an early exit from the bank’s loose monetary policy, which is aimed at reviving the eurozone’s recession-hit economy.

The Washington-based US Federal Reserve signalled last month plans to begin scaling back its stimulus measures if the world’s biggest economy continued to show signs of gaining momentum.

But, unlike the United States, the eurozone economy remains in a fragile state. The ECB expects a contraction of 0.6 per cent this year and growth of only 1.1 per cent in 2014.

However, since the ECB’s 23-head rate-setting council last met about four weeks ago, green shoots have started to emerge across the eurozone’s otherwise bleak economic landscape.

Economic confidence in the 17-member currency climbed for the second consecutive month to a more-than-expected 91.3 points in June, the European Commission’s closely watched Economic Sentiment Indicator showed.

This is likely to help Draghi head off any calls for another immediate cut in interest rates, despite consumer prices remaining within the ECB’s annual target range of close to, but below, 2 per cent and eurozone unemployment at a record high of more than 12 per cent.

Most economists also expect the ECB to keep its benchmark refinancing rate on hold at 0.5 per cent, possibly until the end of 2014.

Draghi is also likely to face a series of questions at his press conference about the deepening political crisis in Portugal and worries about Greece meeting the conditions of its bailout, which have triggered rounds of market tensions.

Published on July 04, 2013
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