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Recession fears keep euro zone rates on hold


Recession fears keep euro zone rates on hold


With economic growth in the euro zone forecast to weaken the European Central Bank has changed tack on interest rates.

Having previously raised rates to counter inflation, the cost of borrowing was left unchanged today and economists think there is a chance that later this year, after Jean-Claude Trichet finishes his term as ECB president, rates could be cut as inflationary pressures ease.

As the bank’s decision was announced Europe’s financial markets rose – with bank shares performing strongly – as investors became more optimistic policymakers will act to avert recession and tackle the euro zone debt crisis.

Traders are keeping a close eye on what the ECB says about its policy on buying government bonds to help those countries that remain under serious threat from the debt crisis – such as Greece, Ireland, Portugal, Spain and now Italy.

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