Two of Europe's main central banks announced Thursday they would be keeping their benchmark interbank lending rates unchanged, in an expected move analysts see as an acknowledgement of creeping inflation and policy exhaustion.
In separate announcements Thursday morning, the Bank of England and the European Central Bank -- the latter in charge of monetary policy for the 17-nation euro zone -- said they would keep their overnight lending rates at 0.5 percent and 1 percent, respectively.
The action was widely expected, with consensus estimates of a survey of economists conducted by Reuters signaling the probability of no change being announced by the ECB at over 80 percent. That contrasted to a similar survey conducted just before the bank's last rate-setting meeting, in early February, that saw forecasters evenly split between calling a rate cut or suggesting no action would be taken.
Part of the change since then has related to the European Central Bank's Feb. 29 long-term refinancing operation, which injected the world financial system with €529.5 ($701) billion in 1 percent-interest, three-year loans. Financial experts both within and without the central bank are still trying to ascertain what the full effect of that massive liquidity provision has been.
The key issue is whether lower money market rates are passing through to retail interest rates, Nomura senior European economist Jens Sondergaard wrote in a note to clients earlier in the week, adding, The January data show a mixed picture, supporting the ECB staying in its 'wait and see' mode for now.
Rising oil prices, which have kept price inflation at higher levels than both the ECB and the Bank of England have forecast, also factored into the decision-making.