ECB holds rates, focus shifts to new forecasts

Thu Dec 5, 2013 8:00am EST
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By Paul Carrel

FRANKFURT (Reuters) - The European Central Bank left interest rates unchanged on Thursday, pausing to assess the health of the euro zone recovery after taking action a month earlier in response to falling inflation, which is now abating.

The decision to hold the main refinancing rate at a record low of 0.25 percent was widely expected after the ECB's surprise decision to cut borrowing costs last month.

"This is in line with expectations as the ECB's action last month was seen to have rebalanced risks to price stability and also pre-empted the publication of what we think will be weak inflation projections," said Nomura economist Nick Matthews.

Markets' attention now shifts to ECB President Mario Draghi's 1330 GMT news conference, at which he will present updated projections from the ECB's staff, which will include their first forecasts for 2015.

The new estimates will give markets insight into the ECB's view on inflation over the medium term, the horizon over which it aims to deliver price stability in line with its target.

Should the new projections point to price growth still clearly undershooting the ECB's target in 2015 - analysts expect a forecast of 1.3 or 1.4 percent - expectations will grow that the bank will take fresh action early next year.

Berenberg bank economist Christian Schulz expected the new forecasts to show inflation staying below the ECB goal in 2015.

"That will raise questions next time Draghi goes to the European Parliament as to why they are not doing more to achieve their own target, and could raise the pressure on the ECB to do more over the coming months," he said.   Continued...

Mario Draghi, President of the European Central Bank (ECB) is silhouetted arrives for the European Banking Congress, at the old opera house in Frankfurt, November 22, 2013. REUTERS/Kai Pfaffenbach