|ECB likely to sit tight on rates
The European Central Bank is set to keep its key interest rates steady at a policy meeting today, despite concerns about the destabilizing effects for the euro area of political gridlock in Italy.
“We do not expect any change in the monetary policy stance,'' said Marie Diron of Ernst & Young Eurozone Forecast. “Fears that were raised as a result of the uncertainty regarding Italy's political situation and economic and fiscal policies seem to have abated somewhat.
“Also, the euro has weakened slightly which takes some of the pressure to lower interest rates off.’’
ECB chief Mario Draghi believes that with interest rates currently at a record low of 0.75 percent, an unprecedented amount of liquidity pumped into banks and a key bond-purchase program in place, the central bank has already done its utmost to help resolve the long-running crisis, AFP reports.
ING Belgium economist Carsten Brzeski said that while a further rate cut might be justified, “in our view the ECB is still inclined to keep rates on hold.
“With the monetary transmission mechanism still not functioning properly, a rate cut is not the right policy answer. Moreover, the political uncertainty in Italy should rather lead to ECB inactivity than new action. All possible ECB action cannot substitute the need for austerity measures and structural reforms. Therefore, and to avoid political complacency, the ECB looks likely to keep its last ammunition dry.’’
Also on the agenda of the meeting will be the ECB's updated staff projections for growth and inflation.
In the last round of forecasts published in December, the ECB had foreseen a contraction in the euro zone economy of 0.3 percent this year followed by growth of 1.2 percent in 2014.