Wednesday, June 6, 2012

ECB holds interest rates at 1%

The European Central Bank left interest rates at 1 percent today, dashing some market expectations that it might move quickly to combat fears about the health of the euro zone.

Focus now flips to the ECB's news conference where head of the bank, Mario Draghi, will detail the decision, give its latest assessment of the euro zone's troubles and lay out any additional support that it plans to put in place.

It is widely expected to announce a lengthy extension to banks unlimited access to ECB loans, while experts are also looking for any hints of another injection of 3-year funding and a further loosening of its lending rules to ensure troubled banks can get ECB money.

Draghi will also give the ECB's latest economic forecasts. Recent troubles are expected to see them revised down from the last set in March when 2012 growth was seen

In the run up to the meeting, the head of the IMF Christine Lagarde, said the bank had room to cut rates. Spain and other hard hit parts of the euro zone would also like the ECB bond buying to provide them with cover while they undertake planned repairs to their economies.

Euro zone unemployment stood at a record 11 percent in April, business confidence has slumped and surveys of manufacturing have hit three-year lows, adding to conviction that the bloc's economy is set to drop back into recession.

Spain said yesterday that it was getting priced out of credit markets. Finance chiefs of the Group of Seven major economies held emergency talks as the debt crisis honed in on the bloc's fourth largest economy, whose autonomous regions have overspent and whose banks and homeowners are laden with bad debts from a burst property bubble.