Home »Top Stories » ECB leaves interest rates steady, awaits signs of recovery

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  • Feb 4th, 2005
  • Comments Off on ECB leaves interest rates steady, awaits signs of recovery
The European Central Bank left interest rates unchanged on Thursday, as expected, while policymakers await clear signs that the euro zone's economic recovery is on a solid footing. This leaves the benchmark interest rate at a record low of 2 percent for the 20th month in a row, as predicted by economists in a Reuters poll. There was little market reaction to the move.

The ECB's Governing Council made the decision a day after the US Federal Reserve raised its key interest rate by another quarter percentage point to 2.5 percent, its sixth rise since last June.

Analysts expect the ECB to lift rates to a more normal level to head off future inflation pressures once the economy proves it has recovered from a softer patch in the second half of 2004, probably in the second half of this year.

Services and manufacturing activity both picked up in January but the jury is still out on whether signs of renewed momentum will continue.

"It could be better," Finnish central bank chief Erkki Liikanen said, when asked about the growth outlook as he entered the ECB building for the monthly monetary policy meeting.

The euro dipped towards $1.30 against the dollar after the ECB decision but Trevor Dinmore, currency strategist at Deutsche Bank, said: "It was completely priced in."

On the debt market the March Bund future showed little change. The June Euribor interest rate future was likewise little moved.

ECB President Jean-Claude Trichet will hold a press conference at 1330 GMT but economists expect little change in tone since the last meeting three weeks ago.

"I expect it will be much the same, the de facto tightening bias will remain but there is no risk of an imminent rate hike," said HVB Group chief economist Joerg Kraemer, who predicts a rate hike of 0.25 percentage points in May.

Copyright Reuters, 2005


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