European Central Bank (ECB) on Thursday decided to keep the key interest rate unchanged at a record low of 0.5 percent, a decision expected by economists. ECB is ready to cut interest rates or pump more money in the economy to help the eurozone recovery.
“If money market developments were to be judged unwarranted in their impact on our assessment of medium-term inflation, then such an instrument should be considered,” said Mario Draghi, President of ECB in a a news conference, stressing that the ECB wants to keep the rates at a low level for an ‘extended period’. “We stand ready to act,” he added.
Pending ECB’s decision, the financing costs of the euro area have been high in the last 12 months. The dollar was at a six-week high against the euro after Mario Draghi’s comments.
The 10-year German government bonds were above 2 percent today, rising to its highest level in 17 months, according to Bloomberg data. Financing costs of Austria, Finland and the Netherlands have also risen to the highest levels in a year.
“We will remain particularly attentive to the implications that these developments may have for the stance of monetary policy,” said Mario Draghi in a warning to financial markets.
Spain sold 10-year bonds Thursday totaling €2.4 billions, at a cost of 4.5 percent, the lowest in the last three years, with a similar situation for Spanish debt on the secondary market. The Northern region has been affected by high volatility. Financing costs in Sweden for 10 years reached on the secondary market 2.7 percent, the highest in two years.
Bank of England also kept unchanged Thursday the policy rate at 0.5 percent and the quantitative easing program at £375 billion. The institution announced a month ago, after Canadian Mark Carney took office as governor, that it will not move to a more restrictive monetary policy before the UK unemployment falls to 7 percent, compared to 7.8 percent today.
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