ECB holds rates at record low, puts focus on March

Thu Feb 6, 2014 11:47am EST
 
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By Sakari Suoninen

FRANKFURT (Reuters) - The European Central Bank left interest rates at a record low on Thursday but put markets on alert for a possible move in March, acknowledging that emerging-market turbulence could hit the euro zone.

Risks to the currency bloc's economy remain skewed to the downside, ECB President Mario Draghi said after interest rates were held at 0.25 percent, and inflation would be low for a protracted period.

"Developments in global money and financial market conditions and related uncertainties, notably in the emerging- market economies, may have the potential to negatively affect economic conditions," Draghi told a news conference.

"The reason for today's decision not to act has really to do with the complexity of the situation ... and the need to acquire more information," he said.

Draghi immediately put markets on alert for possible ECB action in March, when he said the Governing Council would have more information at its disposal, including new forecasts from the bank's staff that will extend into 2016 for the first time.

If emerging-market turmoil persists, a move is more likely next month. A downgrade in the ECB's staff inflation estimate - already at just 1.2 percent for 2014 - could prompt action.

"On balance, we think President Draghi signaled that the Council has effectively called 'time-out' on the rate cut debate, and decided to wait one month before deciding whether to take further action," said RBS economist Richard Barwell.

"On that basis, we too will postpone our rate-cut call from February to March, not cancel it altogether."   Continued...

 
European Central Bank (ECB) President Mario Draghi attends the monthly ECB news conference in Frankfurt January 9, 2014. REUTERS/Ralph Orlowski