ECB holds rates at historic low amid fresh eurozone worries

March 07, 2013 07:21 pm | Updated 07:21 pm IST - Frankfurt

The European Central Bank left rates on hold at a historic low of 0.75 per cent on Thursday amid renewed concerns about the outlook for the eurozone following the political deadlock in Italy and the region’s faltering economy.

As a result, analysts believe ECB chief Mario Draghi could use his regular press conference, set down for 13.00 GMT, to strike a softer tone in his comments on the currency bloc’s outlook, including opening the door to a rate cut in the coming months.

Until now, Mr Draghi has indicated that the Frankfurt-based bank had ruled out any further reductions in borrowing costs after it delivered a rate cut of 0.25 basis points in July.

But renewed uncertainty in the eurozone following last week’s inconclusive election outcome in Italy along with signs that the 17-member currency bloc faced a protracted recession has fuelled speculation that the ECB might have considered fresh emergency measures.

This could include the ECB activating its government bond-buying programme for nations at the centre of the eurozone’s debt crisis such as Italy and Spain.

The ECB’s announcement followed the decisions on Thursday by two other of the world’s leading central banks — the Bank of Japan and the Bank of England — to leave their monetary policies unchanged.

Mr Draghi is also due to set out on Thursday the bank’s latest economic growth and inflation forecasts, part of its staff projections.

As reminder of the fragile state of the eurozone economy, the German Ministry for Economics said industrial orders in Europe’s biggest economy posted a surprise slump in January as the debt crisis resulted in a sharp fall in demand in the currency bloc.

Lower growth and inflation forecasts might also force the ECB’s hand in considering new steps to spur the eurozone economy. This could include injecting fresh liquidity into the financial system by rolling out a new batch of cheap loans.

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