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ECB holds key rate steady

January 14, 2010 | "Barron’s Econoday"

As expected, the European Central Bank left its key interest rate at 1 percent where it has been since May 2009. The EMU emerged from recession in the third quarter – GDP was up 0.4 percent on the quarter but remains 4.1 percent below a year ago. Growth is uneven among member states with Germany and France growing slowly but Spain among the larger states still in recession.

Details of today's decision will be made known at president Jean Claude Trichet's press conference that follows today's announcement. Analysts expect that he is likely to confirm that interest rates remain appropriate given that there is little change in the economic outlook. They also expect that Trichet will say that the ECB will continue to unwind its unconventional support as market conditions improve while at the same time reassuring markets that access to liquidity will remain in place should it be needed. However, given the sovereign debt problems in Greece, Ireland and countries surrounding the EU, the ECB will have to move cautiously so that they do not cut off the ancient recovery.

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