RTTNews - Thursday, the European Central Bank is expected to hold its key interest rate at a record low for the fourth straight month and would continue its monetary stimulus measures to support the economy amid signs of recovery.
The ECB Governing Council, led by President Jean-Claude Trichet, is likely to leave its key interest rate, which is the interest rate on main refinancing operations at its record low of 1%. Interest rates on marginal lending facility and deposit facility are expected to be held at their current levels of 1.75% and 0.25%, respectively.
The Frankfurt-based ECB is set to announce the decision at 7.45 a.m. ET. Thereafter, Trichet and ECB Vice President Lucas Papademos would hold a regular press conference.
Trichet is also expected to unveil new ECB staff economic forecasts. Economists expect better GDP projections this time compared to the one made in June as economic indicators strongly point to growth in the second half.
Chances for a return to growth in the 16-nation economy during the third quarter has become stronger. Major Eurozone economies, Germany and France exited recession in the second quarter, while the single currency bloc as a whole shrank only 0.1% compared to a 2.5% contraction in the first quarter.
Among recent economic indicators, manufacturing purchasing mangers' index hit 14 month-high in August and service sector moved more closer to stabilization. Inflation has been in negative territory since June 2009.
Various sectors of the economy also showed increased confidence about the economy, though retailers were a bit more pessimistic due to a sluggishness in household demand.
Similar to elsewhere, rising number of unemployed is posing a threat to the Eurozone outlook. Latest data from the Eurostat showed that the jobless rate rose to its highest level since May 1999 in July. The seasonally adjusted number of unemployed rose 167,000 to 15.09 million.
This is likely to prompt the ECB to continue its monetary stimulus measures. But, Germany and France have raised calls for ending government spending measures as they fear high fiscal deficits. But, there are disparities emerging between the member nations with France and Germany rebounding much faster than Italy, Spain and Ireland.
Setting the appropriate level of monetary stimulus will become increasingly difficult if these national variations become more firmly rooted, said Markit Senior Economist Rob Dobson on the sidelines of the release of services PMI data.
Earlier on Thursday, the Swedish central bank left its key rate unchanged at 0.25%. The repo rate is expected to remain at this low level until autumn 2010.
Trichet is expected discuss further steps to address the global financial crisis when he participates in a two-day meeting of G-20 finance ministers and central bank heads in London that starts on Friday. This week's G-20 meeting is a preliminary to the G-20 leaders' meeting on September 24-25 in Pittsburgh.
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