ECB holds key interest rate despite OECD pressure

08 May 2014 12:45 Source:ICIS News

LONDON (ICIS)--The European Central Bank on Thursday left its key interest rate unchanged at 0.25% despite increasing pressure from the Organisation for Economic Cooperation and Development (OECD) to take action.

The OECD raised alarms this week over what it identified as persisting downside risks, high unemployment, below-target inflation and high levels of government debt among eurozone economies, stating that the EBC should be ready to intercede.

“In particular, we call on the European Central Bank (ECB) to take new policy actions to move inflation more decisively towards target and to be ready for additional non-conventional stimulus if inflation were to show no clear sign of returning there,” said OECD chief economist Rintaro Tamaki at a press conference in Paris on 6 May.

Fears have grown in recent months that the eurozone may be entering a period of stagnation this week when the European Commission cut its inflation forecasts for the next two years. Eurozone inflation is now predicted to stand at 0.8% instead of 1.0% this year and at 1.2% instead of 1.5% in 2015.

Speculation of a slowdown comes in spite of improving economic output data from many eurozone economies.

Analyst Markit stated this week that the eurozone composite purchasing managers' index (PMI) hit a three-year high in April, albeit at the modest growth rate of 54.0. Figures above 50.0 are indicative of output growth.

The ECB’s monetary policy council (MPC) last cut interest rates in November 2013, reducing interest by 25 basis points from 0.50%.

By Tom Brown