ECB continue to leave interest rates unchanged
4 June 2009
The European Central Bank held its main interest rate at a record low of 1 percent and President Jean-Claude Trichet said this was "appropriate" for now, in line with analysts' expectations that the ECB will keep rates on hold until the end of next year. But he left open the option of further easing, as he did last month.
"We did not decide it was the lowest level of interest rates that we would ever attain, whatever the circumstances," he said.
The ECB chief also denied the covered bond plan, aimed at increasing banks' ability to lend and lowering long-term borrowing costs, was comparable to programs announced by central banks like the U.S. Federal Reserve and the Bank of England. "We are not embarking on quantitative easing," he said. The ECB also said it expected the euro zone recession to last for another year, unveiling details of a plan to pump cash into the troubled economy and keeping interest rates at a record low.
The ECB cut forecasts for the 16-country economy this year and said growth would not return until mid-2010, while inflation would remain well below its 2 percent ceiling. ECB staff predicted the euro zone economy would now shrink by up to 5.1 percent this year, compared with their previous worst-case scenario of a 3.2 percent decline. They signalled it would also struggle to grow in 2010 -- forecasting a change in GDP of between -1 percent and +0.4 percent.