ECB Keeps Interest Rates at Record Low of 1%

After leaving its benchmark interest rate at a record low today the European Central Bank may signal it’s moving closer to withdrawing emergency stimulus measures.

Photo: ECB Keeps Interest Rates at Record Low of 1%

ECB officials meeting in Frankfurt kept the key rate at 1 percent, as predicted by all 56 economists in a Bloomberg News survey. Economists and investors will listen to President Jean- Claude Trichet, who holds a press conference at 2:30 p.m., for clues on when the ECB will start scaling back lending to banks and whether it will charge them more for 12-month money.

“There’s an awful lot happening behind the scenes and some big decisions are looming,” said James Nixon, co-chief European economist at Societe Generale in London. “But Trichet is going to put on a calm face. At most, he will hint the ECB is moving a little closer to an exit.”

Council member Axel Weber said last week commercial banks need to prepare for a “gradual withdrawal” of the ECB’s liquidity, and signaled its 12-month loans in December may be the last. Other policy makers have expressed concern that the economy remains too fragile to remove stimulus measures, and may want more evidence of a recovery before committing to action, Bloomberg reports.

It was also reported, all 78 economists polled by Reuters last week had expected the ECB to leave interest rates at a record low this month, with no change expected until late 2010.

"Rates on hold was a given," said Unicredit economist Marco Valli. "We need to look for the news conference to have something more interesting."

ECB President Jean-Claude Trichet will hold a news conference at 1330 GMT. The euro was little changed after the decision at around $1.4877, Reuters reports.

News agencies also report, Jean-Claude Trichet predicted the eurozone economy would recover gradually in 2010.

"The latest information continues to signal an improvement in economic activity in the second half of this year," he said.

"The [bank] Governing Council expects the euro economy in 2010 to recover at a gradual pace, recognising that the outlook remains subject to high uncertainty."

Next week, the release of third quarter eurozone economic growth figures are expected to show the bloc exited recession, growing by around 0.5% from the second quarter, BBC News reports.