The European Central Bank (ECB) has kept its key interest rate at a record low 0.5 percent, holding off on more stimulus for the economy of the 17-member euro currency union as it monitors the tentative recovery, abcnews.go.com informs.
The ECB has said its low rates are already supporting the recovery and that governments must carry out reforms to improve growth and reduce excessive levels of debt. The eurozone grew a moderate 0.3 percent in the second quarter from the quarter before after six straight quarters of recession. Unemployment, at 12 percent, remains near record highs. The bank’s 23-member governing council made the decision to hold rates at a meeting in Paris. The benchmark refinancing rate determines what banks pay to borrow from the ECB and that in turn influences borrowing rates in the wider economy.
There are concerns market rates, such as those charged by banks when they lend to each other, could rise if the U.S. Federal Reserve reins in its monetary stimulus program, allowing market interest rates to rise. The ECB does not want to see market interest rates rise because the recovery in Europe, unlike in U.S., is only beginning and still needs all the help it can get from low credit costs for businesses and consumers.
So far the Fed has held off tapering its bond purchases, which has helped market rates not rise too much and given the ECB some breathing room. Besides hinting that the ECB could offer another round of cheap loans, he has also said the ECB’s key rates will stay at their current level or lower “for an extended period” until the economy improves. Inflation is weak at an annual 1.1 percent, giving the ECB room to add more stimulus. Lower rates and more credit can push inflation up, but weak growth has kept price increases down. The ECB’s inflation goal is just under 2 percent.