ECB holds key rate steady as expected

1st August 2013, Comments 0 comments

The European Central Bank on Thursday held its key rates unchanged, as widely expected, at its regular monthly policy meeting here.

The ECB's governing council voted to keep the bank's key "refi" refinancing rate steady at an all-time low of 0.50 percent, it said in a statement.

The central bank also left its other two rates -- the deposit rate and the marginal lending rate -- at zero percent and 1.0 percent respectively.

No analysts or ECB watchers had been expecting the central bank to announce any further policy moves this month given recent signs of economic improvement in the euro area.

ECB chief Mario Draghi was scheduled to explain the reasoning behind the decision at his regular monthly post-meeting news conference.

The ECB pared back its key interest rates to a new all-time low of 0.5 percent in May.

At the beginning of July, Draghi pledged to keep them low for as long as necessary or even cut them still further if the need arose.

The comments were seen by some economists as a "mini-revolution" in the ECB's communication policy, since it has never issued such "forward guidance" until now.

Draghi insisted that the policy change was a unanimous decision on the ECB's governing council, but some dissent has become apparent as to the significance of such a change.

Draghi is likely to be quizzed about this at his regular post-meeting news conference, analysts said.

ECB executive board member Joerg Asmussen, for example, suggested that the time-frame for the guidance was at least 12 months.

But the ECB quickly back-pedalled, insisting that was not how his comments should be interpreted.

Bundesbank president Jens Weidmann also waded into the fray, insisting Draghi's comments did not necessarily constitute a decision taken in advance on the direction of interest rates.

The ECB governing council was not tying itself to the mast "like Ulysses", he added.

"After pledging last month to keep rates low for an 'extended period', there will be pressure for the bank to provide more explicit forward guidance," said Capital Economics economist Jennifer McKeown.

"For now at least, such calls are likely to go unheeded," the expert said.

But Draghi could well suggest that the ECB will follow other central banks in publishing minutes of its meetings.

McKeown said that while the decision to leave interest rates unchanged "was fully anticipated, the press conference could offer more interesting hints about a near-term rate cut.

"The recent improvement in some economic indicators might have reassured the governing council that the region is finally exiting recession," McKeown said.

"But Draghi is likely to warn again about the weakness of the monetary indicators. Accordingly, he might back up his earlier claim that interest rates could fall further with a hint that a cut ... could come next month or soon after," she argued.

Draghi could also offer hope of more extended liquidity measures, McKeown suggested.

© 2013 AFP

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