ECB may not raise rates this year
The European Central Bank may have to leave interest rates unchanged until the end of this year or beyond, an increasing number of economists believe, based on the recent poor economic performance of the 12-country eurozone and comments by the central bank.
The ECB has already kept interest rates at 2 per cent for 22 months running. But financial market expectations have shifted significantly in the past few weeks amid signs that eurozone growth is slowing.
The extended delay before the ECB follows the US Federal Reserve in raising rates will add to the concerns of “hawks” on the bank’s governing council about the impact of historically low interest rates on credit growth and asset prices. But council members have admitted recent data has been “mixed”.
In Washington at the weekend, Jean-Claude Trichet, ECB president, again ruled out a cut in interest rates, saying a decrease was “not an option”.
But last week’s ECB monthly bulletin noted that growth indicators showed “no clear signs as yet of a strengthening in underlying dynamics” while “persistently high oil prices in particular pose downside risks to growth”.
The growth outlook has been confused because gross domestic product figures for the first quarter, to be released next month, are forecast to show a rebound compared with the last three months of last year. But the figures for late 2004 were seen as unusually weak, and recent confidence surveys have suggested second quarter growth figures will show a slowdown again.
The ECB has already kept interest rates at 2 per cent for 22 months running. But financial market expectations have shifted significantly in the past few weeks amid signs that eurozone growth is slowing.
The extended delay before the ECB follows the US Federal Reserve in raising rates will add to the concerns of “hawks” on the bank’s governing council about the impact of historically low interest rates on credit growth and asset prices. But council members have admitted recent data has been “mixed”.
In Washington at the weekend, Jean-Claude Trichet, ECB president, again ruled out a cut in interest rates, saying a decrease was “not an option”.
But last week’s ECB monthly bulletin noted that growth indicators showed “no clear signs as yet of a strengthening in underlying dynamics” while “persistently high oil prices in particular pose downside risks to growth”.
The growth outlook has been confused because gross domestic product figures for the first quarter, to be released next month, are forecast to show a rebound compared with the last three months of last year. But the figures for late 2004 were seen as unusually weak, and recent confidence surveys have suggested second quarter growth figures will show a slowdown again.
April 18, 2005
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