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ECB signals rates on hold as euro zone economy weakens

ECB signals rates on hold as euro zone economy weakens
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With economic growth in the euro zone weakening , the European Central Bank has signalled that it has stopped putting up interest rates — for now — to try to promote a recovery.

There is even speculation that the bank may cut the cost of borrowing later this year as inflationary pressures ease

ECB President Jean-Claude Trichet said: “A number of developments seem to be dampening the underlying momentum in the euro area, including a moderation of the pace of global growth, related declines in equity prices and in business confidence and unfavourable effects resulting from ongoing tensions in a number of euro area sovereign debt markets.

Trichet added: “At the same time, short term interest rates are low — while our monetary policy stance remains accommodative — some financing conditions have tightened.”

The ECB’s policy-setting governing council voted unanimously to leave its main interest rate unchanged at 1.5 percent.

The Bank’s rate hikes in April and June after nearly a year and a half on hold now look a little too optimistic as the growth outlook has slipped and debt crisis worsened.

ECB economists have lowered their growth forecasts to around 1.6 percent this year and 1.3 percent next year.

The euro tumbled in response to the gloomy economic prognosis falling to its lowest in two months against the dollar.

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