European Central Bank maintains key interest rate level

07 March 2013 12:47  [Source: ICIS news]

LONDON (ICIS)--The European Central Bank (ECB) on Thursday held its key interest rate at 0.75% despite fourth-quarter GDP contractions in the EU and eurozone, and political instability in Italy.

Representing the eighth consecutive month that the bank has held its interest rate at that level, the ECB is also to hold off from deploying any capital through its bond-buying scheme, originally announced in September 2012.

Known as outright monetary transactions (OMTs), the ECB’s unconventional bond-buying programme involves purchasing eurozone government debt on the secondary market to drive down interest rates on borrowing.  

So far, no government has requested assistance through the scheme, but the implication that the ECB is willing to backstop government debt helped to drive down Spanish bond yields from around 7%, the level at which government borrowing is perceived to be unsustainable.

On 5 July 2012, the ECB cut interest rates to a record low of 0.75%, following six straight months at 1.0%. In December, the ECB cut interest rates to 1% from 1.25%, following a fall of 25 basis points announced in November.

After October 2008, when the level was at 4.25%, the bank cut its key rate several times as it tried to haul the eurozone economy out of deep recession.

The eurozone contracted by 0.6% and the EU by 0.5% in the fourth quarter of 2012, according to European Commission data unit Eurostat.

By: Tom Brown
+44 208 652 3214

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