ECB holds interest rates steady

5th August 2004, Comments 0 comments

5 August 2004 , FRANKFURT - The European Central Bank on Thursday held its benchmark interest rate at 2 percent. The ECB's decision was in line with recent forecasts by analysts who believe that rates in the 12-member eurozone are likely to remain on hold possibly until early next year as the bank's 18-head rate- setting council weighs up the inflation threat posed by the recent surge in oil prices against the prospects for economic growth. The ECB's benchmark refinancing rate has been on hold since June l

5 August 2004

FRANKFURT - The European Central Bank on Thursday held its benchmark interest rate at 2 percent.

The ECB's decision was in line with recent forecasts by analysts who believe that rates in the 12-member eurozone are likely to remain on hold possibly until early next year as the bank's 18-head rate- setting council weighs up the inflation threat posed by the recent surge in oil prices against the prospects for economic growth.

The ECB's benchmark refinancing rate has been on hold since June last year with many analysts believing that a shaky economic recovery, high unemployment and sluggish consumer demand means that the ECB is no rush to change monetary policy.

ECB chief Jean-Claude Trichet did not hold a press conference to explain the bank's decision following Thursday's meeting with members of the bank's governing council conferring by way of a teleconference. In short statement, the bank announced that rates were to remain unchanged.

The bank uses its press conferences to set out its current thinking on monetary and economic developments. The next press conference has been set down for 2 September.
But the bank will release next week its monthly report which could help to shed light on how the bank is sizing up current economic pressures, in particular the recent surge in oil prices.

Since Tichet's last press conference on 1 July a surge in oil prices to record highs has threatened to boost inflation and derail the economic recovery in the eurozone that began to emerge last year.

Soaring oil prices have already helped to push the eurozone's inflation rate above the bank's two per cent target.

In the meantime, data released this week has underscored the fragile state of the recovery in the eurozone and pointed to risks that strong export growth, which has been the driving force behind the currency bloc's upturn, could fade before a pickup in domestic demand take hold.

Key German data released Thursday showed both factory orders and car sales in Europe's biggest economy falling. The 3.5 percent drop in June factory orders was led by a 6.5 percent fall in foreign orders.

As a result, with unemployment remaining high in the eurozone and the currency bloc's recovery only slowing taking shape, the ECB is also expected to be one of the last to join the global push to high interest rates.

Indeed, Thursday's ECB meeting coincided with an announcement by the Bank of England in London that it had raised its benchmark interest rate by 25 basis points to 4.75 percent in a bid to head off inflationary pressures and dampen a booming housing market.

The decision, which was widely expected, pushed borrowing costs in Britain to their highest level in three years.

DPA

Subject: German news

 

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