The European Central Bank has maintained the Eurozone’s interest rate at the record low level of 0.75%, a move expected by economists.
The Euro has weakened against the majority of its peers as a result. Investors see the rate decision as confirmation that the region will struggle to emerge from recession anytime soon. The ECB is likely to paint a grim picture for the region for next year.
“It will be interesting and important to look at how they see the risks of the economic outlook,” said Nick Matthews, economist at Nomura.
“Our baseline is that they keep them to the downside, but any change to that stance — so if they move to something more balanced or even ‘slightly tilted to the downside’ – would signal increased confidence from the ECB,” said Mr Matthews, who expects a rate cut in March next year.
Despite the EU and International Monetary Fund taking action to help Greece and the ECB’s promise to save the single currency the Eurozone region has fallen back into recession and is showing very few signs of a recovery any time soon.
Also, market interest rates vary greatly across the 17-country bloc and the ECB is focused on fixing what it calls the ‘transmission mechanism’ for passing on its rates to all corners of the euro area before contemplating lowering official borrowing costs.
Since unveiling a new bond-buying plan in September, the ECB has held off further action until the programme is activated. That wait looks set to continue as Spain resists pressure to request a bailout a precondition for the ECB to buy its bonds.
The fall in the level of inflation from 2.5% to 2.2% eased pressure on the bank to raise rates. A further decline in the region’s economy could force the bank to act next year.
The Pound to Euro exchange rate is currently trading at 1.2366
The Pound to US Dollar exchange rate is currently trading at 1.6114
The Pound to Australian Dollar exchange rate is currently trading at 1.5360
The Euro to US Dollar exchange rate is currently trading at 1.3030
The Euro to Pound exchange rate is currently trading at 0.8085
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