ECB Keeps Rate at Record Low

The European Central Bank left interest rates at a record low as it tries to get credit flowing again and strengthen an economy that may return to growth this quarter.

ECB officials meeting in Frankfurt today kept the benchmark rate at 1 percent.

The ECB in June lent banks a record 442 billion euros ($636 billion) for 12 months and will hold two more 12-month tenders this year. Last month it started a program to buy 60 billion euros of covered bonds, securities backed by mortgages and public-sector loans.

While the ECB’s bank lending survey showed last week that fewer banks tightened credit standards in the second quarter, loans to households and companies grew at the weakest pace on record in June.

If banks remain reluctant to lend, the ECB may be forced to step up its response as the economic slump swells unemployment and prices decline. The jobless rate rose to 9.4 percent in June, the highest since 1999, and consumer prices posted a 0.6 percent annual decline in July, the biggest since data were first compiled in 1996.

The ECB predicts the euro-region economy will contract about 4.6 percent this year and 0.3 percent in 2010. Inflation will average 0.3 percent this year and 1 percent in 2010, it forecast in June. The bank, which aims to keep inflation just below 2 percent, will publish revised projections next month.

ECB Keeps Rate at Record Low, Bloomberg
8/6/2009 8:53:16 AM