ECB Leaves Key Refi Rate Unchanged At Record Low
The European Central Bank on Wednesday decided to hold fire on rates, as any tightening will be premature and dampen early signs of recovery in the region.
The 23-member rate-setting council left the main refinancing rate unchanged at a record low 0.50 percent for the fifth month. The previous change in rate was in May, when it was lowered by a quarter point.
The bank held the marginal lending facility rate at 1 percent and the deposit rate was also left unchanged at zero.
The governing council gathered in Paris instead of its usual venue in Frankfurt and the meeting was brought forward to Wednesday as it is a public holiday in Germany on Thursday.
ECB Chief Draghi is set to hold the post meeting press conference at 8.30 am ET.
Although ECB Chief Mario Draghi recently hinted at long-term refinancing operation and measures needed to address rising money market rates, economists see no major announcement later today. The markets expects LTRO only later this year.
Given the doubts over the effectiveness of more LTROs though, other new measures to stimulate lending may eventually be needed to sustain the recovery, said Ben May, an economist at Capital Economics.
Money market rates have shown signs of rising recently on talks of Federal Reserve's "tapering" of bond purchases.
Elsewhere, Italian Prime Minister Enrico Letta faces a confidence vote today. Italy's political instability and its huge debt burden will weigh on the nation's borrowing costs and will once again trigger talks of ECB's bond buying program.
Last month, the ECB upgraded its 2013 economic outlook for the euro area, to show a 0.4 percent contraction, compared to the 0.6 percent GDP decline estimated in June. However, the growth projection for 2014 was cut to 1 percent from 1.1 percent.
Inflationary pressure remained subdued in the 17-nation bloc, with inflation falling to the lowest since early 2010 in September. Inflation is forecast to average 1.5 percent this year.
The sharp decline in lending to private sector together with low inflation amid nascent recovery is expected to prompt the central bank to keep its interest rates low for an extended period.
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