Euro zone interest rates remain on hold

| September 8, 2011 | 0 Comments

The European Central Bank (ECB) has today opted to leave interest rates unchanged at 1.5% - for the second consecutive month.

Rates were lifted from the historic low of 1% in April and then raised further to 1.25% in July in a bid to curb rising inflation.

Many major economies are battling with higher inflation, which is rising due to higher energy, commodity and food prices.

A report published today showed global food prices are hovering near an all-time high, according to the UN Food and Agriculture Organisation (FAO).

The index hit a level of 231 points in August – a rise of more than a quarter compared with the same period a year ago.

Back in February, the index hit an all-time high of 238 points.

In the meantime, the ECB has lowered its growth forecasts for the 17-member nation. It expects growth of 1.6% this year, and 1.3% in 2012.

This compares with an earlier forecast of 1.7% in 2011 and 1.9% next year.

ECB president Jean-Claude Trichet said: “Looking ahead, a number of developments seem to be dampening the underlying momentum in the euro area.”

Meanwhile, it expects inflation to remain above its target of 2% over the next few months before falling back in 2012.

Returning to today’s interest rate decision, many believe that the central bank may soon have to reduce rates again if the debt crisis persists and the euro zone sinks back into recession.

Figures released earlier today showed German exports slowed in July – suggesting the recovery of the euro zone economy is faltering.

Germany, which is Europe’s largest economy, has been driving the recovery of the region but recent data has suggested the economy is faltering.

According to Destatis, exports fell by 1.8% in July on a monthly basis compared with a 1.2% drop in June. Economists had forecast a 0.1% fall for the month.

Today, Paris-based Organisation for Economic Cooperation and Development (OECD) suggested the German economy could contract by 1.4% in the fourth quarter on an annual basis.

Meanwhile, the news comes shortly after the Bank of England today opted to keep UK interest rates at 0.5% - where they have been since March 2009.

Despite coming under pressure to combat stubbornly high inflation, the Bank of England is reluctant to lift rates at this stage as the economic recovery is stuttering.

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