ECB holds interest rates, forecasts grim 2013

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ECB holds interest rates, forecasts grim 2013

ECB holds interest rates, forecasts grim 2013
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As expected, the European Central Bank kept its main interest rate unchanged on Thursday at a record low 0.75 percent for the fifth month running.

The ECB also slashed its forecasts for the eurozone economy.

Its experts believe a contraction is very likely next year before a return to growth in 2014.

The ECB cut its estimate of gross domestic product (GDP) for next year to between a fall of 0.9 percent and growth of just 0.3 percent.

The bank also cut its forecast marginally for 2012, giving a midpoint of -0.5 percent compared to -0.4 percent three months ago.

It had previously forecast -0.4 percent to 1.4 percent for 2013, suggesting the economy was more likely to grow than contract.

“Economic weakness in the euro zone is expected to extend into next year,” ECB President Mario Draghi said. “A gradual recovery should start later in 2013.”

In the face of the deteriorating outlook for the eurozone economy, Draghi and his fellow policymakers are holding off any further policy easing while they assess the economic outlook and wait for the chance to use the bank’s new bond-purchase programme.

But the bonds of Spain – which is first in line for support – cannot be bought until Madrid requests a bailout, a precondition for ECB intervention.

The ECB’s economic assessment will be analysed carefully, not only to sketch out a future interest rate path but also for other measures that could help revive the debt-stricken south of the eurozone.