The European Central Bank is expected to keep interest rates at a record low of 0.75% at its Thursday's meeting in an effort to wrestle the Eurozone out of an economic slump.
by Eva SjekelovaWBP Online
Frankfurt - The European Central Bank (ECB) will mark the new year with steady interest
rates at its policy meeting on January 10 to keep up the pressure on
governments to solve the ongoing debt crisis.
The ECB's Governing Council will try to extend the calm instilled on markets last year when ECB President Mario Draghi pledged to do "whatever it takes to preserve the euro", economists said, adding that policy
makers will keep interest rates at record low of 0.75% until at least the first quarter
of next year.
The central bank is probably
waiting for the latest developments in the euro area amid efforts by European officials to resolve the debt crisis, analysts predicted.
"Whilst a rate cut cannot be entirely ruled out, we do not expect the Governing Council to change interest rates at its meeting on Thursday," economist at Commerzbank Michael Schubert said.
"There are so many reasons against a rate cut. First of all, it wouldn't really achieve
anything; secondly, policy makers are still unsure about the
impact on the deposit rate; thirdly, it looks like we are
reaching the bottom in terms of the economy and the Bundesbank
would never agree to it," economist Christian Schulz from Berenberg Bank in London commented.
At December's meeting, ECB President Draghi acknowledged that some members of the Governing Council had pushed for a rate cut and opened the door to such a
move if conditions do not improve.
Meanwhile, markets could see some indications of
stabilization in the global economy.
Positive data came from Germany, the strongest European economy, as the unemployment in the country rose less than analysts forecast in December and business confidence increased for a second month in a row after demand from outside Europe
boosted factory orders and exports.
In addition, German Finance Minister Wolfgang Schaeuble said he believed the embattled euro area was now past the peak of its three-year-long debt crisis.
Yields on Spanish benchmark bonds, an indicator of the government's borrowing costs, dropped close to 5% last week, after reaching a peak of 7.566% on July 24.
Outside of Europe, US manufacturing picked up in December after reaching a three-year low, while the services industry in China grew
at the fastest pace in four months.
"I remain confident that last year will go down in history as
the year when it all turned. I wouldn't be surprised if this year recovery turns out
somewhat stronger than expected," chief global economist at UniCredit in London Erik Nielsen wrote in a note to clients.
are not expecting more monetary easing from the ECB. The ECB will focus
on fixing monetary transmission and hence bring easier financial
conditions to the periphery, but apart from that we expect that the
economy will recover during the year and thereby reduce the need for
more easing," Anders Svendsen, chief analyst at Nordea Markets Research, said.
This year, European policymakers faces potential pitfalls arising from widening
debt in Spain, Italy's election in February, continuing
austerity in Greece, while they are also assembling a rescue
package for Cyprus.
Draghi also faces the managerial challenge of building up a banking
supervision that was agreed to by Eurozone finance ministers in December.
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