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November 4, 2010    

Euro zone interest rates remain on hold

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by Kay Murchie

The European Central Bank (ECB) today elected to keep interest rates on hold at the historic low of 1% – where they have been since May 2009.

Interest rates are expected to remain on hold until at least 2011, as a result of uneven growth and low inflation.

The news comes after the Bank of England elected to keep interest rates at the historic low of 0.5% and opted not to restart the quantitative easing (QE) programme.

Neither the UK nor the euro zone followed in the footsteps of US central bank, the Federal Reserve, which yesterday announced it will introduce a fresh round of stimulus.

The move was widely expected after concerns for the US economic recovery amid low inflation and rising unemployment.

The Federal Open Market Committee (FOMC) has agreed to inject an additional $600 billion (£373 billion), albeit higher than the $500 billion expected by many economists.
The move will see the bank buy up Treasury debt at a rate of $75 billion a month – a policy which has been branded “QE2“.

In related news today, it was revealed that growth in the euro zone’s service sector slowed last month, as growth in new orders remained weak.

The Markit euro zone Services Purchasing Managers’ Index (PMI), fell to an 8-month low last month of 53.3, down from 54.1 in September.

However, analysts had expected the index to fall to 53.2 but the index remains above the crucial 50 level, which separates growth from contraction.

Chris Williamson, chief economist at Markit, said: “The service sector remains the weak link in the euro zone recovery.”

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