European Central Bank likely to leave euro zone rate at 1 per cent
02 Jul 2009
As European Central Bank policymakers prepare to meet in Luxembourg on later today, they are widely expected to leave the 16-nation euro zone's main interest rate untouched at an all-time low of 1 per cent.
ECB president Jean-Claude Trichet is sure to face questions about the threat of deflation at a press conference following the rate decision. Euro zone consumer prices fell in June for the first time since records began in 1996, a Eurostat estimate has shown.
As the eurozone wallowed in its first ever recession, the ECB launched a huge rescue raft last week, lending banks a record 442 billion euros ($626 billion) for a year at 1.0 per cent. It was the bank's first full-year refinancing operation and is due to be followed by two more this year, when the rates could be higher.
The central bank also plans to buy 60 billion euros worth of low-risk corporate bonds to prime business finance markets and has pressed banks to raise lending rather than hoard windfall loans to dress up their books. The post-meet press conference is expected to fill in some of the missing details of the unorthodox plan to buy bonds.
German central bank governor Axel Weber, a prominent ECB council member, warned last week that if lending did not pick up, the ECB would start extending credit directly through the purchase of corporate debt.
Eighty-one of 82 economists polled by Reuters forecast the ECB would leave the refinancing rate at 1.0 percent, and the governing council will probably repeat that the current record low rates are appropriate.
