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ECB holds rates amid weak inflation and muted growth

Business Materials 4 March 2010 17:16 (UTC +04:00)
The European Central Bank (ECB) left interest rates on hold Thursday amid expectations it plans to further roll back the emergency monetary measures launched to shore up financial market confidence in the wake of the global recession.
ECB holds rates amid weak inflation and muted growth

The European Central Bank (ECB) left interest rates on hold Thursday amid expectations it plans to further roll back the emergency monetary measures launched to shore up financial market confidence in the wake of the global recession, DPA reported.  

Coming amid signs of weak inflation and fragile economic indicators, analysts predict the ECB will retain rates at their historic low of 1 per cent well into the year.

Meanwhile in London, the Bank of England (BoE) announced that it had left interest rates on hold at a record low of 0.5 per cent and had not increased the funds made available under its emergency monetary scheme, the so-called quantity easing programme. The moves had been expected by financial markets.

Preliminary data released Tuesday showed the eurozone's annual inflation rate came in at 0.9 per cent in February, slipping from 1.0 per cent in January.

Moreover, consumer prices in the eurozone are forecast to remain well below the ECB's 2-per-cent ceiling for annual inflation for the coming months.

Thursday's statements from the ECB governing council meeting and the BoE monetary policy committee came just one day Greece announced its third round of tough budget cuts aimed at slashing its ballooning deficit and debt levels.

Greek Prime Minister George Papandreou is to visit Berlin on Friday for talks with Chancellor Angela Merkel as part of an effort to draw Athens' key European partners in behind its battle to clean up its state finances.

In a statement released Wednesday, the ECB's governing council welcomed "the convincing additional and permanent fiscal consolidation measures" and praised Greece's "strong commitment" to reach its fiscal objectives.

As a result, Greece's financial crisis is again expected to take centre stage at ECB chief Jean-Claude Trichet's regular monthly press conference set down for later Thursday.         

However, Trichet is again expected to rule out offering any special help to Athens, which joined the eurozone in January 2001, two years after the common currency was launched.

But with the ECB keen to normalize markets as the financial crisis slowly ebbs, Trichet is expected to outline at his press conference the next moves in the gradual withdrawal of emergency lending measures it launched to shore up investor confidence in the wake of the global economic firestrom.

In addition at his press conference, Trichet is scheduled to release the ECB's latest so-called staff projections, which are forecast to come in at about the same as the December predictions.

These pointed to 2010 growth of about 0.8 per cent and 2011 growth of 1.2 per cent.

But the ECB forecasts are more cautious than the predictions laid out by many analysts with some economists expecting growth in the currency bloc this year to hit 1.5 per cent in 2010 and 1.7 per cent in 2011.

Inflation should come in at 1.3 per cent this year and 1.4 per cent next year, the ECB's December staff projections said.   

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