Euro zone interest rates remain on hold

| October 6, 2011

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

The move was widely expected.

Rates were lifted from the historic low of 1% in April and then raised further 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.

Annual inflation in the 17-member euro zone rose to a 3-year high of 3% last month – above the target of “close to 2%”.

ECB President, Jean-Claude Trichet, is set to hold a press conference later today – his last after his eight-year term comes to an end this month.

Many economists believe the central bank could announce a fresh round of liquidity measures to help banks survive the ongoing debt crisis.

However, there is speculation that the ECB may soon have to lower interest rates if the debt crisis persists and the euro zone sinks back into recession.

Yesterday, the Washington based International Monetary Fund (IMF) warned that a recession in Europe next year “can’t be ruled out”.

Its comments come in its latest 100-page report on the economic outlook for Europe, in which it said the UK, Germany and France should “consider delaying” cuts, if economic conditions deteriorate.

However, the Fund is still forecasting growth of 1.1% for the euro zone in 2012 but said any standstill in growth by the end of 2011 would demand a reversal of 2011 fiscal policy where possible.

Earlier this week, credit rating agency Standard & Poor’s lowered its growth forecasts for the euro zone next year and warned that “the chances of Europe plunging into a new recession now appear more likely.”

In other news today, the Bank of England also opted to keep UK interest rates at 0.5% – where they have been since March 2009.

However, the Bank announced it will restart its quantitative easing (QE) scheme – a move which was widely expected after the Office for National Statistics (ONS) yesterday revealed the UK economy grew by 0.1% in the second quarter – slightly less than a previous estimate of 0.2%.

Furthermore, the ONS revised growth downwards in the first quarter from 0.5% to 0.4%.

A recent slew of weak economic data had led to speculation that the central bank would embark on its “QE2” programme to boost the economy.

The Bank of England today said it will pump a further £75 billion via its QE scheme after injecting £200 billion into the economy in November 2009.

Tags: , , , , ,

Comments (0)

Trackback URL | Comments RSS Feed

There are no comments yet. Why not be the first to speak your mind.

Comments are closed.