Thursday, December 5, 2013

ECB holds refi rate steady at 0.25 pct, as expected

    The European Central Bank (ECB) held its benchmark refinancing rate steady at 0.25 percent, as expected, along with its other policy rates and said ECB President Mario Draghi would comment on the reason for this decision at a press conference later today.
    The ECB will also release its latest economic forecasts later today. In its September forecast, the ECB projected that the economy of the 17 nations that share the euro would contract by 0.4 percent this year, following a 0.6 percent contraction in 2012, and then expand by 1.0 percent in 2014.
    Inflation is forecast to average 1.5 percent next year, down from 2012's 2.5 percent, and then average 1.3 percent in 2014.
    The ECB targets inflation that is close to, but below 2.0 percent and last month the European Commission, the European Union's executive branch, forecast 1.5 percent inflation in 2014 and 1.4 percent in 2015, illustrating the ECB's challenge in raising inflation.
    Last month the ECB surprised financial markets by cutting its policy rate for the second time this year - for a total cut of 50 basis points - and said banks would given as much money they need at least until July 2015. Economists had expected the bank to wait with any rate cut until this month or early next year.
    But a large fall in the October inflation rate to 0.7 percent from 1.1 percent the previous month convinced ECB policymakers of the need to cut rates. In November inflation ticked up to 0.9 percent.
    The euro zone's Gross Domestic Product grew by a meagre 0.1 percent in the third quarter from the second quarter for an annual decline of 0.4 percent, the seventh quarter in a row with a shrinking economy on an annual basis.

    But unemployment fell to 12.1 percent in October from 12.2 percent and there are growing signs of an economic rebound, with economic confidence rising to a 27-month high in November, according to the European Commission's latest index of consumer and executive confidence.
    Last month Draghi also confirmed the ECB's guidance from July that its policy stance would "remain accommodative for as long as necessary" and ECB interest rates would "remain at present or lower levels for an extended period of time."
    The ECB has not specified what it means by an extended period of time.



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