European Central Bank holds rates amid market tensions
The European Central Bank (ECB) held its benchmark lending rate on hold at an historic low for the 18th consecutive month Thursday as a rising euro underscored the pressures facing monetary authorities in the 16-member eurozone, DPA reported.
The euro breached the key 1.40 dollar mark after the Frankfurt- based bank's 22-member rate-setting council said it had left its benchmark refinancing rate unchanged at 1 per cent.
But speaking after the ECB meeting, bank chief Jean-Claude Trichet told his regular monthly press conference warned about the threat to the current economic outlook posed by renewed market tensions and protectionist pressures.
He said more then ever before exchange rates should reflect economic realities and pointed to the "adverse implications" for economic stability of disorderly movements in currencies.
He said that the ECB's current "monetary stance remains accommodative."
The ECB chief said that recovery remains in place but warned that economic growth should moderate.
Inflationary pressures remain contained, he said. Analysts believe that eurozone inflation peaked at 1.8 per cent in September.
Europe's common currency has gained about 17 per cent since it slumped to 1.16 dollars in early June at the height of the debt crisis that gripped the eurozone.
The euro's ascent on foreign exchange markets follows signs that the ECB might break ranks with other major central banks and roll back emergency stimulus programs launched during over the last two years to combat the global economic crisis.
But while the US Federal Reserve for one considers embarking on a new round of non-interest emergency monetary programs aimed at addressing concerns about a faltering recovery, the ECB wants to move in the opposite direction.
However, Trichet told reporters that the bank was continuing to monitore developments with regard to the Frankfurt-based ECB unconventional monetary measures and efforts to inject liquidity into the economy.
Signs that he ECB hopes to roll back its non-standard measures has helped to trigger what analysts have dubbed a currency war as the new push to expansionary monetary policies helps to weaken currencies and consequently boost national economic competitiveness.
Ahead of the ECB announcement, the Bank of England (BoE) said it had held interest rates at an historic low of 0.5 per cent for the 19th month in a row.
The decision by the bank's Monetary Policy Committee (MPC) came amid growing pressure in Britain for renewed measures to stimulate sluggish growth and halt the rise of inflation.
But the nine member-strong MPC resisted pressure to resume so- called quantitative easing (QE) measures to help counter what was the world's deepest recession in a generation.
Under the scheme, the BoE pumped 200 billion pounds (318.7 billion dollars) into the economy by last November.
The Bank of Japan led the way on Tuesday to a more expansionary monetary policy by effectively lowering interest rates to zero and unveiling a series of other non-interest rate moves in response to the country's fragile recovery and the risk of deflation.
Along with Japan, the authorities in China, Brazil and South Korea have also launched exchange rate interventions to stem rises in their national currencies so as to ensure their exports remain competitive.
The problem for the ECB and eurozone economic policymakers is that a strong euro could undercut the currency's bloc recovery from recession.
This is especially the case as exports have been the key driving force behind the currency bloc's economic growth.
Also boiling away in the background for the ECB are the ongoing market tensions unleashed by the battles in parts of the eurozone to slash their high debt-and-deficit levels. This includes Greece, Portugal, Spain and Ireland.
"Credible multi-year consolidation plans are needed and will strengthen public confidence in the capacity of governments to return to sustainable public finances, reduce risk premiums in interest rates and thus support sustainable growth over the medium term," said Trichet.