The European Central Bank (ECB) has left interest rates unchanged – for now – despite ongoing financial turmoil in the eurozone. But analysts expect it to switch to trimming mode soon because of market pressures.
The European Central Bank (ECB) decided not to raise interest rates on Wednesday, leaving them at a historic low of 1.0 percent. Rates have been on hold since late last year when the bank delivered two 25-basis-point cuts in November and December of 2011.
Markets had been unsure how the ECB would react to the recent wave of weak economic data, knowing that the bank hadn’t give up hope that euro area leaders would finally tackle the crisis more effectively.
“I can imagine that the market is a little disappointed that the bank didn’t cut rates,” Rabobank Economist Elwin de Groot told Reuters news agency.
Concerted action needed
ECB President Mario Draghi warned that risks to the eurozone’s recovery were increasing. “Economic growth in the euro area remains weak with heightened uncertainty weighing on confidence and sentiment,” Draghi told reporters in Frankfurt.
The ECB is the only institution that’s capable of immediate action on behalf of the eurozone. But it has been urging governments to get rid of their gradual approach and address the debt crisis head on.
The deepening banking crisis in Spain and the generally gloomy economic situation in the whole of the eurozone suggest, though, that the ECB will soon have to move to boost confidence in the currency bloc.
Analysts had been waiting for indications as to whether the bank would top up its program of offering cheap long-term loans or reactivate its controversial government bond-buying operations. Draghi said favorable loans would be available to banks until at least January 2013.
hg/mll (dpa, Reuters)