RTTNews - Thursday, the European Central Bank is expected to retain its key interest rate at a record low level for the third straight month as the 16-nation currency bloc is showing signs of recovery.
The central bank is likely to hold its interest rate on the main refinancing operations at 1%, the interest rate for the marginal lending facility at 1.75% and that for the deposit facility at 0.25%.
The last change in the key interest rate was in May, when the bank cut the rate by 25 basis points to the current level of 1%. The bank has lowered the key interest rate by a total of three and a quarter percentage points since early October 2008.
The decision would be announced at 7.45 a.m. ET at the ECB premises in Frankfurt, Germany. The bank's President Jean-Claude Trichet and Vice President Lucas Papademos are set to hold their post-decision press conference at 8.30 a.m. ET.
Most economists are of the view that the central bank is unlikely to announce further policy stimulus. In June, the ECB lent a record EUR 442 billion for banks for 12 months and said it will hold two more 12-month tenders this year. Last month, the ECB started buying EUR 60 billion worth covered bonds to boost lending.
The latest bank lending survey by the central bank revealed that 21% of banks tightened their credit standards for lending to enterprises in the second quarter, down from 43% in the first quarter. In the meantime,the net percentage of banks reporting a tightening in credit standards for house purchases eased to 22% from 28% and that for consumer credit fell to 21% from 26%. Looking forward, banks expect the net tightening of credit standards applied to loans to households to weaken somewhat further in the third quarter of 2009.
Recent surveys suggest that confidence is returning to the economy. The composite purchasing manger's index that measures private sector activities improved for the fifth month in July, indicating that the contraction is losing pace. A monthly survey by the European Commission showed that economic sentiment in the euro area rose for the fourth straight month in July.
Eurozone inflation is expected to remain negative for some time. In June, euro area inflation turned negative for the first time on record and continued the trend in July. According to an advance estimate from the Eurostat, consumer prices fell 0.6% year-on-year in July following a 0.1% drop in June. The ECB aims at inflation rates below, but close to 2% over the medium term.
The economy contracted at a record pace of 2.5% in the first quarter. The International Monetary Fund forecasts the Eurozone economy to contract 4.8% this year.
Also on Thursday, the Monetary Policy Committee of the Bank of England is widely expected to hold the key rate at a record low and to decide upon further quantitative easing measures.
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