The European Central Bank (ECB) today kept its benchmark interest rate unchanged at a record low following data suggesting that the economy in the single currency area maybe improving at last. Also Thursday, the Bank of England kept its monetary policy unchanged as seeks to produce new guidance on interest rate expectations after its August guidance was overtaken by Britain’s strong economic recovery.
The 24-member governing council at its policy meeting in Frankfurt kept the main rate at 0.25% after cutting it by a quarter point in November.
While annual inflation fell to 0.7% in January, compared with the target of close to 2%, purchasing managers’ index survey data was strong in January.
Mario Draghi, ECB president, has hinted that the central bank could consider buying packages of bank loans to households and companies, if the deflation threat persists. He ruled out quantitative easing (QE), where a central bank buys government bonds or companies’ debt and thereby creating money. He said last month that some people think QE is “magic” but the European Union treaty “prohibits monetary financing.” He added that the corporate bond market was small and working well: “there is no need to do something in that field”.
Draghi began a press conference at 1:30 pm Irish time: webcast.
In London, the Bank of England’s Monetary Policy Committee today voted to maintain Bank Rate at 0.5%. The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves (bond-buying) at £375bn.
The Committee reached its decisions in the context of the monetary policy guidance announced alongside the publication of the August 2013 Inflation Report and its latest economic projections will appear in the forthcoming Inflation Report to be published at 10.30 a.m. on Wednesday 12 February.
When the policy of forward guidance was first announced, in August last year, Mark Carney, Bank of England governor, said the bank would not raise interest rates until the unemployment rate fell to 7% or below.
Jobless figures released last month showed that the rate fell to 7.1% in the three months to November 2013.
Source: Finfacts
