ECB likely to leave interest rates on hold

The European Central Bank is expected to leave interest rates on hold on Thursday as it waits for fresh evidence on the 18-member euro zone’s inflation outlook.

The Frankfurt-based ECB, which this week holds an out-of-town meeting in Brussels, last cut the cost of money in November, when it trimmed its benchmark refinancing rate by 25 basis points to 0.25 per cent.

Since then, ECB chief Mario Draghi has warned that the currency bloc could be facing a protracted period of low inflation as the region’s cash-strapped southern members struggle to emerge from a long-running recession and a stronger euro drives down prices.

Inflation in the euro zone rebounded to 0.7 per cent in April, the EU statistics office Eurostat had said last week, helping to ease the pressure on the ECB as it considers whether to take action to head off the threat of deflation.

However, the Organization for Economic Cooperation and Development joined this chorus this week of those calling on the bank to reduce the borrowing costs, saying it should reduce interest rates to zero from 0.25 per cent and to launch a new monetary stimulus plan.

Still, many analysts believe the ECB is likely to wait until it releases its new inflation and economic growth forecasts in June before taking any further action.

The build-up to Thursday’s ECB’s meeting has also been accompanied by signs that the euro zone economy might have turned the corner in its battle to remain on an economic growth path.

The London-based Markit research group confirmed this week that its purchasing managers’ index for the euro zone’s manufacturing and service sectors increased at its fastest pace in almost three years in April, rising to 54 points.

This came after Portugal said it was planning to follow Ireland and end its EU-led €78-billio ($108.13-billion) bailout by returning to the government debt market.

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