ECB keeps rates on hold despite slowing growth

February 5th, 2009 - 11:59 pm ICT by IANS  

Frankfurt, Feb 5 (DPA) The European Central Bank (ECB) kept interest rates on hold at two percent Thursday but left open the door for a reduction in borrowing costs when it meets next month.Speaking at a press conference following the bank’s governing council meeting, ECB chief Jean-Claude Trichet said he was not excluding a rate cut at the March meeting.

Trichet went on to say that ” two percent is not the lowest level” but said that “zero interest rates is not something we think is appropriate”.

He told reporters that “inflationary pressures are diminishing” as the world economy faces up to “a significant downturn” amid signs of tighter credit and exceptionally high financial uncertainty.

The ECB chief said that the bank’s 22-head rate-setting council will have a lot of additional information, including the bank’s new staff projections on economic growth and inflation.

The Frankfurt-based ECB’s decision to to take a break in its rate-cutting cycle comes after the bank delivered a hefty 50 basis points cut last month as it faces up to what the International Monetary Fund (IMF) believes will be the global economy’s worst downturn in 60 years.

The ECB’s 22-head rate-setting council’s decision to sit tight on rates was in line with forecasts from analysts, who expect dwindling inflation and slumping economic growth will force the bank to reduce borrowing costs possibly to an historic low of 1.50 percent next month.

The bank has cut the cost of money by a total of 225 basis points since October. Thursday’s ECB meeting in Frankfurt came in the wake of the Bank of England (BoE) announcing in London a 50-basis points cut in the cost of money, which brought rates in the European Union’s second biggest economy down to one percent.

Meanwhile, annual eurozone inflation dropped to its lowest level in about a decade in January, tumbling more than forecast to 1.1 percent on the back of falling oil prices and a slowing economy.

At eight percent, eurozone unemployment is now at its highest level in more than two years with companies having cut production and laid off workers across the currency bloc.

Figures published while the ECB was deliberating Thursday showed key German factory orders plunging by 27.7 percent year on year in December.

As a consequence, economists believe that a steady stream of grim eurozone economic data will result in the ECB also continuing to trim rates in the coming months.

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