The European Central Bank has left its benchmark interest rate unchanged and ruled out a cut. The bank’s 18 policy makers, meeting in Berlin, decided to keep it at 2% for a 24th straight month
The decision comes against a background of low morale among businesses and consumers, high unemployment, poor economic growth prospects for the euro zone and modest inflation.
Economists say those factors make it unlikely the ECB will raise rates this year and some even speculated about a rate cut. Questioned on that, ECB president Jean-Claude Trichet emphatically rejected the idea.
He also said there is little evidence high oil prices are pushing up inflation significantly, but they are hurting economic growth: “Some of the downward risks to economic growth identified earlier in particular those related to persistently high oil prices appear to have partially materialized over the past few months.”
Trichet seems optimistic the euro zone can overcome its current problems. He said: “When looking beyond the short term, conditions remain in place for stronger real GDP growth.”
The ECB is under increasing pressure from top euro zone politicians, including German Economy Minister Wolfgang Clement and Italian Prime Minister Silvio Berlusconi, to reduce borrowing costs in order to stimulate the region’s economies.