The European Central Bank (ECB) has dampened hopes for a further cut in interest rates, considering the economic situation in the euro currency area as weak but stable. The ECB also brushed aside fears of deflation.
The European Central Bank (ECB) would leave its benchmark refinancing interest rate unchanged at 0.25 percent, the central bank for the euro currency area announced Thursday.
According to ECB President Mario Draghi, economic and monetary conditions in the eurozone had not changed enough to warrant a higher or lower rate.
Concerning other monetary policy measures, the Draghi said the ECB also wouldn't suspend weekly operations to soak up liquidity from bond markets, which is known as sterilization. At the height of the eurozone debt crisis in 2009, the ECB pumped billions of euros into money markets to stabilize struggling member states by buying their sovereign debt. In recent years, however, the bank has gradually retrieved the money.
“We didn't see any development in the money markets that would justify the use of this instrument,” Maria Draghi told a news conference.
A halt to the securities sterilization would add around 175 billion euros ($240 billion) in liquidity to the market, and might be used by the ECB to boost economic growth.
However, the central bank on Thursday raised its forecast of economic growth in the currency area from a previous estimate of 1.1 percent to 1.2 percent now. For 2015 and 2016, eurozone gross domestic product (GDP) was estimated to expand by 1.5 percent and 1.8 percent respectively.
Seeing its economic baseline by and large confirmed, the ECB also failed to take action against weak inflation, which some fear might eventually lead to falling prices in the eurozone. Falling prices, commonly described as deflation, are bad for any economy as they discourage consumers from buying goods because they anticipate even lower prices. This, in turn, sets off a downward spiral of lower investment, higher unemployment and subsequently sagging growth.
The ECB estimated inflation would remain low at about 1 percent this year, with acceleration to about 1.7 percent over the next two years. The inflation outlook, however, firmly reaffirmed ECB policy keeping rates at their current level or lower, Draghi said.
The ECB president recently stressed that he didn't see any signs of deflation - a statement which starkly contrasts with ECB perceptions that view prices to be stable at or near an inflation rate of 2 percent.
uhe/rc (dpa, Reuters, AFP)