ECB holds rates steady, expects deeper recession | Business| Economy and finance news from a German perspective | DW | 06.06.2013
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ECB holds rates steady, expects deeper recession

The European Central Bank (ECB) has predicted the eurozone recession to deepen as it revised downward its economic outlook for 2013. Nevertheless, it has stopped short of cutting historically low interest rates further.

The European Central Bank (ECB) was predicting economic output in the eurozone to shrink by 0.6 percent this year, compared with a previously forecast contraction of 0.5 percent, the central bank for the 17 countries using the euro announced Thursday.

Following a meeting of the bank's governing council, ECB president Mario Draghi said the council continued to see downside risks for growth in the eurozone.

"They include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries," he told a regular news conference in Frankfurt.

However, Draghi also said that there was reason for economic optimism that the eurozone economy would stabilize and recover in the course of the year. As a result, the ECB expected eurozone gross domestic product (GDP) to increase by 1.1 percent in 2014.

Despite the current grim economic situation in the 17-nation eurozone, the central bank has left its key refinancing interest rate unchanged at a record low of 0.5 percent. The decision was widely expected after the bank had already cut the rate by 0.25 percent last month.

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ECB drops main interest rate

Nevertheless, Draghi said there had been a very rich discussion in the 23-member governing council about further ECB action to stimulate growth in the eurozone. They had included lowering the ECB deposit rate to below zero and measures to boost lending to small eurozone businesses, as well as more central bank lending to banks.

"But in the end, we see no reason to act on all these fronts. These are all measures we keep on the shelf," he added.

As a matter of fact, Draghi held the door open for another cut in interest rates, as he said the bank would monitor very closely how the eurozone economy was doing. As far as inflationary pressure is concerned, the ECB has much room to maneuver. On Thursday, it revised its 2013 outlook for inflation to 1.4 percent - well below the 2-percent threshold regarded by the ECB as price stability.

uhe/dr (AP, AFP, Reuters, dpa)

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