THE European Central Bank (ECB) has left its key interest rate unchanged at a record low, holding off on further stimulus even as the economy across the 17 European Union countries that use the euro limps through a recession.
The bank's 22-member governing council on Thursday kept the refinancing rate unchanged at 0.75 per cent. The rate determines what private-sector banks are charged for borrowing from the ECB, and through that what rate the banks set for their businesses and consumer clients.
Markets are now waiting for a news conference by President Mario Draghi, who is expected to announce the bank is cutting its growth forecast for next year.
A rate reduction in theory could stimulate the eurozone's economy by making it easier to borrow, spend and invest. But rates are already low, and borrowing remains weak. There are only a few early signs that previous rate cuts and stimulus measures are finally trickling through to the wider economy.
The eurozone economy shrank 0.1 per cent in the third quarter and is expected to fall further in the last three months of the year. Market analysts expect the ECB to cut its growth forecast for next year to around zero from 0.5 per cent in September, bringing its outlook in line with 0.1 per cent predicted by the European Union's executive arm, the Commission.
Some analysts think the bank may now consider it has done enough to help the economy after a year of drastic measures. The most important was an offer to buy unlimited amounts of bonds issued by of Europe's heavily indebted countries.
The bond purchase plan announced in September has helped stabilise the eurozone debt crisis. The purchases would aim to drive down bond interest rates, which would lower borrowing costs for indebted countries such as Spain and Italy and make it easier for them to carry their debt loads.
Although no bonds have been bought, the mere possibility has influenced the bond market and for now pushed borrowing costs back to sustainable levels for those two countries.
But while governments are breathing easier, that hasn't restarted growth. While some business confidence indicators are beginning to rise and the supply of money in the economy is increasing, consumer spending sagged 1.2 per cent in October.
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