Euro zone rates on hold as guard changes

Fri Oct 28, 2011 10:11am EDT
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By Sakari Suoninen

FRANKFURT (Reuters) - Euro zone interest rates will very likely remain on hold next week as the European Central Bank navigates the transition to new leadership, with an anti-crisis plan forged by EU leaders taking some heat off monetary policymakers.

The bank's November 3 meeting will be the first chaired by Mario Draghi, who takes over the ECB presidency at the beginning of next month after six years at the helm of the Bank of Italy.

Draghi will want to give the ECB's communications with financial markets his own stamp -- a process he kick-started on Wednesday by signaling the bank stands ready to press on with the bond-buying program it relaunched in August.

More than that, however, he will want to avoid surprising markets on his debut.

With Italy increasingly mired in the sovereign debt crisis, Draghi's position is a delicate one, as any fresh gesture of support in that direction could easily be viewed -- especially in the euro zone's largest economy Germany -- as bias toward his country.

On the other hand, if the ECB pulls away existing crisis support he could face criticism from southern Europeans for taking his cue from Berlin and the Bundesbank.

Draghi is thus likely to start his tenure with a low-key approach and keep rates where they are even as euro zone growth falters and the chances of recession grow.

"I think it is quite difficult for the ECB to entertain the thought of a move (in interest rates) in November," said Citi economist Guillaume Menuet.   Continued...

<p>A man walks past an index board at a hall of the Athens Stock Exchange, October 27, 2011. REUTERS/Yiorgos Karahalis</p>