European Central Bank leaves benchmark interest rate at 0.25 per cent
Posted January 9, 2014 9:33 am.
This article is more than 5 years old.
FRANKFURT, Germany – European Central Bank is ready to take “further decisive action” using “all available tools” to spur the eurozone’s weak recovery, President Mario Draghi said Thursday.
Still, the ECB took no action at its monthly policy meeting, leaving its key interest rate unchanged at a record low of 0.25 per cent. And Draghi declined to offer any more hints about what steps the bank might take in coming months.
The eurozone economy grew only 0.1 per cent in the third quarter, and unemployment is high at 12.1 per cent. Draghi repeated the bank’s reassurance that it intends to keep rates at current or lower levels for an extended period of time.
Beyond that, he held the door open for more measures to boost the economy, without saying which.
Draghi said it was pointless to speculate what specific actions the ECB might take. He would say only that the bank could use any tool permitted under the European Union treaty that created the bank and the shared euro currency.
Some indicators of business activity suggest the recovery in the 18-country eurozone is strengthening gradually. Confidence among consumers and businesses about the future is on the rise, and retail sales have picked up.
But inflation is low, at only 0.8 per cent, far below the ECB’s goal of just under 2 per cent. That is raising fears the eurozone could fall into a deflationary spiral, in which falling prices choke off growth.
Analysts say the bank might offer cheap loans to banks on conditon that the money is loaned to companies. That would provide more credit so businesses can expand and hire people.
Still, any stimulus measure has drawbacks. ECB officials have said pushing banks to make loans could interfere in their market-based decisions.
Lower rates in theory help growth, but rates are already low.
The bank could also penalize banks for hoarding funds in the form of deposits at the ECB, charging them a negative interest rate. But banks might just pass the costs on to customers.
