ECB holds interest rates steady
The European Central Bank (ECB) kept interest rates at a record low of 0.75 per cent at the meeting of its Governing Council in Frankfurt today, in line with expectations. It refrained from making a cut for the sixth month in a row as the eurozone economy shows some signs of stabilising and inflation still tops its target.
Speaking after the announcement, president of the ECB, Mr Draghi told reporters that the decision to keep interest rates unchanged was “unanimous”, as inflation remains stable.
“The real economy continues to be what was diagnosed in our projections a month ago, so there wasn't any reason to change the outlook for price stability. That's why our discussion has been unanimous,” he said, adding that “risks to inflation over the medium term are seen as broadly balanced”.
Looking at the broader economy, Mr Draghi highlighted areas where there have been improvements.
“Bond yields and country CDS are much lower. Stock markets have increased. Volatility is at a historical minimum. The deposits in peripheral banks have gone up, Target 2 balances have gone down. All in all we have signs that fragmentation is being gradually repaired. But all of this has not found its way to the real economy yet, so the real economy continues to be weak,” he said, adding that “the economic weakness in the euro area is expected to extend into 2013."
In this respect, he said that “further structural reforms should be rapidly implemented to make the euro a more flexible and dynamic economy”.
When asked, Mr Draghi refused to comment on Ireland’s recent bond sale, but noted that declining bond yields in Europe means that tail risk has been removed, leading to an improvement in financial market conditions and stabilisation.
With regards to LTRO funding conditions, Mr Draghi said that right now they are satisfactory, “contrary to what was the issue at beginning of last year when there was s serious potential for serious distress and systemic risk”.