ECB holds steady on rates
1 April 2004
FRANKFURT – The European Central Bank on Thursday held its benchmark refinancing rate at 2.0 per cent, with ECB President Jean- Claude Trichet putting a damper on hopes for a cut by saying rates were “in line” with upholding price stability.
The ECB governing council kept the rate at 2.0 percent – double the US. Federal Reserve’s record-low 1.0 percent – as had been widely expected in financial markets.
But analysts watching for signs that the ECB may be looking to lower its rates got a damper when the eurozone bank chief said that rates remained “in line with the maintenance of price stability in the medium term”.
Inflation in the 12-nation eurozone group is currently running at about 1.6 percent, below the ECB’s target limit of 2 percent.
Trichet said the ECB would continue to keep an eye on any dangers to prices in the eurozone group.
The last time the ECB lowered its rates was in June 2003, when the eurozone bank lopped a one-half basis point off its refinancing rate in order to give the limping eurozone economy added liquidity at easier terms.
Analysts last week had thought they saw the ECB leaning towards a possible rate cut when Trichet in an interview in the German business daily Handelsblatt had expressed concern about the slow pace of the economic upturn so far this year.
At the same time, the ECB has been urged by such top-level politicians as French Premier Jean-Pierre Raffarin and German Chancellor Gerhard Schroeder to reduce its rates in order to improve the economic growth framework.
Though at an all-time low, the European rate is still twice the US Federal Reserve’s record-low 1.0 percent rate, with that gap proving to keep the euro buoyant against a slumping dollar.
But the strong euro is now a worry to Europe’s exporters and was cited as a factor in the recent declines in Germany’s closely-watched Ifo-Institut monthly business confidence index.
After the ECB no-change decision on Thursday, the euro advanced in currency trading to USD 1.2374 in afternoon trading, up from its ECB reference rate of USD 1.2320 a few hours before.
The rate is still well below its record-high of more than USD 1.29 set in mid-February.
Subject: German news