Draghi confirms: No rate rises for extended period

THE EUROPEAN Central Bank (ECB) confirmed yesterday that it would keep rates at 0.5 per cent or even lower for the near future, expanding its new forward guidance policy.

Mario Draghi, ECB president, said: “The governing council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time”.

The bank’s head said that there was likely to be an improvement in the economic fortunes of the currency union, but that it was not assured, highlighting the risk to the euro area if global demand slowed, or if structural reforms were less successful than expected.

Despite some improvements, Howard Archer, chief European economist at IHS Global Insight, said: “We think there is still a very real chance that the ECB will eventually take its key policy rate down from 0.50 per cent to 0.25 per cent. We anticipate that the Eurozone will continue to find it very tough to develop clear growth”.

In the rest of Europe, Spain’s Prime Minister, Mariano Rajoy made a public apology for his handling of a scandal in which his party’s former treasurer, who has now been imprisoned, hid millions of euros in Swiss bank accounts to avoid tax. Rajoy maintained that his party did not accept illegal payments.

Back in the UK, there were no surprises from the Bank of England’s monetary policy committee (MPC), which held bank rate at 0.5 per cent and left the UK’s QE scheme at £375bn once again. Rates have been at their historic low since early 2009.

The Bank will report back in less than a week on the prospects for inflation in the UK, as well as responding to chancellor George Osborne’s request for an assessment of alternative tools for monetary policy, like the US Federal Reserve’s unemployment threshold.