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No change in eurozone cost of borrowing


economy

No change in eurozone cost of borrowing

As expected, the European Central Bank has kept its main interest rate at a record low 0.5 percent as it assesses how the eurozone is doing.

Economic data did improve slightly in May – when there was a rate cut – and ECB President Mario Draghi said this week he still sees “a very gradual recovery” starting later this year, which would take pressure off the ECB to act again.

During his news conference after the rate announcement, Draghi said the ECB had “marginally” revised down its growth forecast for this year, but had “marginally” raised next year’s forecast.

“This can be seen as a reaction to the slight improvement in the purchasing managers indices (PMIs), which seem to signal that the worst is over in the eurozone,” said David Kohl, chief economist for Germany at Julius Baer.

Purchasing managers index surveys on Wednesday showed eurozone business activity shrank in May, but at a slightly slower pace. Downturns have eased in France, Italy and Spain, and Germany is stabilising, the data showed.

Inflation, which fell to 1.2 percent in April, rose back to 1.4 percent in May, closer to the ECB’s target of just below 2.0 percent, while Eurostat confirmed the bloc’s economy contracted by 0.2 percent in the first quarter of the year.

Draghi is considering various ways to restart growth. He has been discussing with other European Union officials how the region’s banks can be encouraged to lend more to small companies, but with no concrete proposals so far.

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