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ECB interest rates to stay anchored: analysts
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ECB interest rates to stay anchored: analysts
AFP - Wednesday, October 7
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President of the European Central Bank (ECB) Jean-Claude Trichet arrives for a Eurogroup meeting in Gothenburg. The ECB will leave its main interest rate at 1.0 percent until the 16-nation eurozone is well on its way to recovery, analysts said ahead of an ECB rate decision on Thursday in Venice.
FRANKFURT (AFP) - – The European Central Bank will leave its main interest rate at 1.0 percent until the 16-nation eurozone is well on its way to recovery, analysts said ahead of an ECB rate decision on Thursday in Venice.
The decision was basically certain after ECB governing council member Gertrude Tumpel-Gugerell made a rare comment on monetary policy just before the meeting, one of two held yearly outside Frankfurt.
Tumpel-Gugerell told a conference in Austria Monday that the ECB's current monetary policy stance was "appropriate," a code word for no change in the near future.
"The ECB will keep rates on hold this week and in most of 2010," ING senior economist Carsten Brzeski and many others concluded.
The eurozone is set to pull out of recession in the third quarter of this year, but a recovery was not risk-free, influential ECB council member Axel Weber said Tuesday.
"We're only seeing green shoots ... downside risks remain," Weber, who is also head of the German central bank, told an International Monetary Fund meeting in Istanbul.
Both he and Tumpel-Gugerell said measures taken by the ECB to boost growth, including massive supplies of cash to eurozone banks, should remain in place until a recovery was ensured.
In Britain, the Bank of England was also expected to keep its key rate at a record low of 0.50 percent on Thursday. Related article: Bank of England to hold rates
Attention turned in the meantime to foreign exchange markets.
On Tuesday, the dollar fell further owing to expectations of US interest rates staying low for awhile and a media report that Gulf states could stop using the US currency for oil transactions.
The euro traded for 1.4743 dollars, a two-week high, and ECB president Jean-Claude Trichet told media on Monday that "other currencies, in particular currencies of the emerging world, should appreciate."
Trichet was probably referring to Asian currencies, and the comment marked a change from his normal practice of noting only that US authorities supported a strong dollar.
Weber also pointed Tuesday to a need for "greater foreign-exchange flexibility in some emerging economies."
Many Asian nations, including China, keep their currency's exchange rate essentially pegged to that of the dollar.
Brzeski at ING told AFP: "It is remarkable how outspoken Trichet and other governing council members have been on the exchange rate in recent days.
"They are increasingly becoming concerned with the strength of the euro for two reasons: the recovery and global rebalancing."
Official distortion of exchange rates prevents markets from absorbing global trade and savings imbalances, a factor behind the financial and economic crises, Adrian Blundell-Wignall of the Organisation for Economic Cooperation and Development told AFP last month.
And if the euro's rise in value persists it will hamper eurozone exporters, especially in weaker performing southern European countries.
"Appreciation of Asian currencies, mainly the Chinese, would smooth the rebalancing and would spread the burden more equally," Brzeski said.
Barclays Capital economist Thorsten Polleit noted however that individuals living in the eurozone personally benefit more from a strong euro.
But the 16-nation bloc must reduce unemployment and ensure that businesses and households get enough credit to spur economic activity.
Unemployment climbed in August to a 10-year high of 9.6 percent and could surpass 10 percent next year according to the International Monetary Fund.
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