ECB holds interest rates, waits on Spanish decision

08 November 2012 12:45  [Source: ICIS news]

LONDON (ICIS)--The European Central Bank (ECB) continued to hold its key interest rate at a record low of 0.75% on Thursday, as the bank waits for a second month for Spain to decide whether to utilise its new bond purchase programme.

The ECB announced a scheme in September to stabilise the eurozone by purchasing short-term government debt on the secondary market to reduce the interest on treasuries. Spain had been expected to sign up to the bail-out programme, but is yet to request assistance.

The announcement in September helped to calm choppy markets, but the eurozone economy remains weak, according to ECB head Mario Draghi.

Speaking in Germany on Wednesday, he said: “Unemployment is deplorably high. Overall economic activity is weak and it is expected to remain weak in the near term. And the growth of money and credit are subdued. In this context, inflation is well contained. We expect it to fall below 2% next year.”

The impact of the bond purchase programme, which has no limits on the amount of government debt that could be bought up, would be “sterilised” by the ECB removing as much money as it spends on the programme through other parts of the eurozone economic system.

The ECB’s key interest rate has been held at 0.75% since 5 July this year. Prior to that, it had stood at 1% for six months.

By: Tom Brown
+44 208 652 3214

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