Brussels, 06/08/2009 (Agence Europe) - On Thursday 6 August, the European Central Bank decided to keep Euro-zone interest rates at their current levels. The interest rate on the main refinancing operations therefore remains at 1.00% and rates on the marginal lending facility and the deposit facility remain at 1.75% and 0.25% respectively. This is the third consecutive time rates have remained unchanged and was expected by market actors who don't expect changes over the next year.
At the end of the Board of Governors meeting, its president Jean-Claude Trichet reaffirmed that rates were “appropriate” and risks to growth and inflation were in the right balance. His speech was more or less the same as last month's and ruled out any risk of deflation in the Euro-zone. Euro-zone inflation continued to fall in July (to -0.6% as opposed to -0.1% in June) but this new fall in prices reflect primarily base effects resulting from the peaks observed in global commodity prices a year ago. This fall in the general price index will be “temporary” insisted Mr Trichet, who also expects a return to positive inflation rates in the second half of the year. Upward prices, inline with the ECB's stability target (almost 2%) but which must remain subdued due to weak demand.
Growth: economic activity is expected to be weak for the rest of the year but the pace of contraction is clearly slowing down, explained Trichet, but who refused to make any definitive conclusion on the matter. Clearer indications are expected to be available at the end of the next board of governors' meeting on rates on 3 September when new forecasts of the ECB's services will be published.
The Euro has been at its lowest level since its launch ten years ago but the 1% interest rate is, however, the highest of all major developed countries. On Thursday, the Bank of England also announced that it was keeping its main rate to 0.5%, an historical low level. The US Federal Reserve main lending rate is within a 0%-0.25% and exchange rates on a daily basis at the Bank of Japan is practically zero (0.10%). Monetary policy effects are beginning to be felt and measures will gradually have an effect, explained Mr Trichet who called on the banks to fully act on the decisions made.
The Board of Governors also looked at the first month of the implementation of the securitised bonds purchase scheme. After a slow start, the European Central Bank bought around €5bn in these bonds (with a variety of assets including mortgages). The programme intends to devote a total of €60bn to the programme over 12 months.
The president of the ECB reiterated his desire to return to healthy and sustainable public spending. He agreed with Eurogroup's position that no new budgetary measures were necessary but underlined the need to elaborate ambitious and realistic budget exit and corrective strategies as part of the Stability and Growth Pact. Mr Trichet stated that, “the structural adjustment process should start, in any case, not later than the economic recover an in 2011 the consolidation efforts should be stepped up”. (A.B./trans/rh)