ECB rates unchanged as Trichet bows out

The European Central Bank has held the cost of borrowing unchanged this month, but outgoing president Jean-Claude Trichet prepared the ground for an interest rate cut in the next few months when he spoke at the news conference following his final policy meeting today.

Explaining that downside risks to economic growth in the euro zone have intensified, Trichet said the ECB will offer banks additional longer-term liquidity and will also restart its purchases of covered bonds.

Calls for an interest rate cut have grown louder amid signs the euro zone economy is weakening and as Greek default fears hit confidence in banks.

Italian Mario Draghi replaces Trichet in November and the financial world is keen to see what policy changes he introduces.

At its September meeting, the ECB changed course and put its rate hikes — started in April as the first of the major central banks — on hold, saying euro zone inflation risks were no longer skewed to the upside, but were now “broadly balanced”.

Since then, signs that the economy is stalling have grown. Economists at Goldman Sachs recently said they now expect the euro area to slide into a “mild recession” in the fourth quarter, as do others.

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