ECB, BoE leave interest rates unchanged
By George Frey and Robert BarrFri Oct 9 01:38:57 EST 2009
Thu Oct 8 14:38:57 UTC 2009
FRANKFURT, Oct 8 AP - The European Central Bank (ECB) and the Bank of England (BoE) have left their key interest rates unchanged at record lows.
The ECB left its main refinancing rate at 1 per cent while the Bank of England left its rate at 0.5 per cent.
ECB President Jean-Claude Trichet told reporters on Thursday after the decision: "The recovery will remain uneven, affected by balance sheet corrections in the financial and non-financial sectors in and outside the euro area.
"We have signs of stabilisation. We are out of the free-fall. We have to be cautious. We have to be prudent."
Trichet said the ongoing improvement in financial markets should support credit availability, but reiterated banks should strengthen their capital positions and take advantage of available government programs to do so.
Trichet said the ECB would monitor the recovery and have an exit strategy at the ready from the bank's "extraordinary measures", to provide markets with capital.
The ECB, which sets monetary policy for the 16-countries that share the euro currency - a bloc of about 320 million people - is holding its meeting in Venice, Italy, part of a twice-yearly program to visit other euro-zone countries.
In London, in addition to keeping its main interest rate unchanged at 0.5 per cent, the Bank of England also held off from any further moves to expand the money supply - for now.
Both those decisions were widely expected but the Bank of England said it would keep its asset purchase program - known as quantitative easing - "under review".
At present, the BoE can buy up to STG175 billion ($A313 billion) of financial assets, such as government bonds, from the banks. The aim of the policy is to increase the money supply in the hope that eventually the banks will start lending more to the private sector.
"The committee expects the announced program to take another month to complete. The scale of the program will be kept under review," the BoE said.
The BoE will have to decide whether a recovery is indeed under way, thus requiring no expansion of quantitative easing, or whether more stimulus is needed.
The central banks' decisions come days after disappointing industrial production data for August fuelled fears that the British economy won't return to growth in the third quarter.
Following the industrial data, the National Institute for Economic and Social Research, a leading independent forecaster, estimated that the British economy didn't grow in the third quarter.
