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ECB keeps rates unchanged
The European Central Bank left its benchmark interest rate at 4.25 per cent on Thursday, and markets are now awaiting President Jean-Claude Trichet's take on whether global financial havoc has affected the rate outlook.
- Reuters
- Published: 00:13 October 3, 2008
Frankfurt: The European Central Bank left its benchmark interest rate at 4.25 per cent on Thursday, and markets are now awaiting President Jean-Claude Trichet's take on whether global financial havoc has affected the rate outlook.
All 81 analysts polled by Reuters last week had expected the ECB to keep rates at a 7-year high for the third month in a row yesterday, due to its concerns about above target inflation.
But there is growing evidence that the region's economy is suffering after more than a year of financial market turmoil, which has deepened dramatically in recent weeks.
"Leaving rates on hold is no surprise but the economic landscape in favour of such a decision is changing quickly," said UniCredit analyst Aurelio Maccario.
Trichet will deliver the Governing Council's first in-depth assessment of the latest financial market turmoil at a news conference at 1230 GMT, including what the crisis means for the health of the euro zone economy and its interest rate stance.
Disturbances
The key is whether ECB policymakers believe the ructions of the last few weeks have inflicted enough economic damage to warrant possible interest rate cuts in the next few months, even though inflation looks set to remain far above target.
"We are fairly sure that Trichet will acknowledge that the last few weeks have increased the downside risks to the wider economy," said Royal Bank of Scotland economist Gareth Claase. "If he then also tones down his stance on inflation then, yes, it could pave the way for rate cuts."
"However, we think he may say that the appropriate response was injections of liquidity and capital, and that it is not necessary or helpful to adjust interest rates at the current juncture. That could surprise people on the hawkish side."
The euro was little changed against the dollar after the decision but European stocks pared gains.
Among economists there is a now a growing belief that rate cuts are inevitable, the only question is when.
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