RTTNews - Thursday, the European Central Bank held its key interest rate at a record low level for the fourth straight month to support the economy that is showing some signs of stabilization.
The ECB Governing Council, led by President Jean-Claude Trichet, left its key interest rate, which is the interest rate on main refinancing operations at a record low of 1%. The decision was in line with expectations.
The last change in the key interest rate was in May 2009, 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 central bank also retained its interest rate on the marginal lending facility at 1.75% and that on the deposit facility at 0.25%.
ECB President and Vice President Lucas Papademos would hold a regular press conference at 8.30 a.m. ET, when Trichet is 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.
The Organization for Economic Co-operation today revised its outlook for the euro area to show a contraction of 3.9% this year instead of an earlier projection of 4.8%.
We see some signs confirming that the real economy is starting to get out of the period of free fall - which does not mean at all that we do not have a very bumpy road ahead of us, Trichet said on August 22 in an annual conference at the Federal Reserve Bank of Kansas City in Jackson Hole.
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. These countries are expected to place their need in a two-day meeting of G-20 finance ministers and central bank heads starting tomorrow in London, which is preliminary to the G-20 meeting on September 24-25 in Pittsburgh.
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.
Trichet is expected discuss further steps to address the global financial crisis when he participates in G-20 London meeting.
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.
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