European Central Bank holds rates steady
FRANKFURT, Germany — Mario Draghi, the president of the European Central Bank, offered a spirited defense of the wisdom of doing nothing Thursday. That was after he and his fellow policymakers dashed expectations for an interest-rate cut or other action to stimulate the still ailing eurozone economy.
During his news conference after the bank’s monthly monetary policy meeting, Draghi described the eurozone as an “island of stability,” gave a slightly more upbeat view of the region’s growth, and delivered a lengthy discourse on all the reasons to believe that Europe was not in danger of falling into the same deflationary rut as Japan.
Draghi’s only concession to those looking for more energetic action was to promise that interest rates would remain low even after the eurozone economy started to recover. Rates will stay at the current low or even lower “even though we will be seeing improvements in the economy,” Draghi said after the central bank left its key interest rate at 0.25 percent.
Carsten Brzeski, an economist at ING Bank, summed things up curtly.
“In fact, the ECB did not do anything,” he wrote in a note to clients.
Some analysts, encouraged by statements Draghi made a month ago, had expected the bank to cut rates to a record low. But Draghi made it clear that the ECB did not see conditions as being dire enough to warrant further stimulus yet.
Rather, the bank issued a slightly more upbeat forecast for the eurozone economy, saying it would expand by 1.2 percent this year. In December, central bank economists forecast growth of 1.1 percent.
Perhaps significantly, Draghi did not use the word “fragile” to describe the eurozone recovery, as has been his habit in recent months. While many risks remain, he told reporters, “the ongoing recovery is expected to proceed, albeit at a slow pace.”
Also Thursday, the Bank of England decided to leave its benchmark interest rate unchanged at a record low, as Britain’s economic recovery continues and inflation appears to be stable. Britain’s central bank said it would keep its key interest rate at 0.5 percent, where it has been since March 2009. The bank also left unchanged its stimulus program of holding 375 billion pounds, or $627 billion, in government bonds that it has purchased over the past five years.
Britain’s economy grew 0.7 percent in the fourth quarter, after 0.8 percent growth in the third quarter, outpacing much of continental Europe. Inflation in January was 1.9 percent, slightly weaker than expected.