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Thursday, July 4, 2013

ECB keep key rates down, hints at new direction



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The European Central Bank (ECB) has frozen its key rates, as president Mario Draghi says that the bank will continue to do everything to stimulate the Eurozone economy.


As expected, the ECB has resisted raising its interest rates once again, keeping headline borrowing costs down to a record low of 0.5%. The bank has also kept the deposit rate at 0%, while the interest rate at which banks borrow from the ECB stays at 1%.


More crucially, the ECB indicated a new policy direction in forwards guidance – the prediction of interest rates – and said that the current regime of low interest rates is not over yet, although he refused to be drawn on his definition of “extended period of time,” despite several questions form journalists.


“Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged,” he said, adding that “our monetary policy stance will remain accommodative for as long as necessary. The governing council expects the key ECB interest rates to remain at present or lower levels for an extended period of time.”


“This expectation is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics.”


Draghi refused, however, to be drawn into too much speculation about the future of Portugal – currently undergoing a political crisis – and Greece, except in broad terms. The ECB president refused flatly to answer a journalist question about Portugal.


He said that Portugal, the recipient of a €78 billion bail-out, had so far shown “remarkable results” in its attempted turnaround. He welcomed the appointment of Maria Luis de Albuquerque, who replaced outgoing finance minister Vitor Gaspar. He said that Greece had also shown “significant progress.


 


For the moment, he said, the ECB will show a “downward bias in interest rates.”


He said that there was amercement that low interest rates potential pose a threat to financial stability. However, he said that the ECB not foresee such risks in the near future. 







READ THE ORIGINAL POST AT www.neurope.eu