ECB May Keep Rates at Record Low

The European Central Bank will leave interest rates at a record low and signal it’s in no rush to withdraw emergency stimulus measures as the economy shows signs of recovering from its worst recession since World War II, economists said.

The ECB is wary of nipping the nascent euro-region recovery in the bud by tightening policy too soon. While the bank is likely to raise its forecasts for economic growth today after Germany and France unexpectedly exited their recessions in the second quarter, rising unemployment and the expiry of government rescue packages may damp expansion next year.

The ECB announces its rate decision at 1:45 p.m. and Trichet will release the revised economic forecasts during a press conference 45 minutes later. Economists will also watch for any comments on the ECB’s 12-month loans to banks, which could reveal a lot” about its broader policy intentions, said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London.

Trichet will discuss the next step in the global response to the financial crisis when he meets officials from the Group of 20 nations in London from tomorrow. While the Federal Reserve and Bank of England are pumping money directly into their economies through the purchase of government and corporate bonds, the ECB has focused on lubricating bank lending in an effort to rekindle growth.

In June it offered lenders as much cash as they wanted for 12 months at its benchmark rate, resulting in a record allotment of 442 billion euros ($629 billion). Trichet has kept open the option of charging a higher interest rate at the next 12-month tender on Sept. 29.

ECB May Keep Rates at Record Low, Bloomberg
9/2/2009 10:41:06 PM