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ECB leaves key rate at record low 0.5 pct


September 05. 2013 8:36AM
Associated Press

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(AP) The European Central Bank has left its benchmark interest rate unchanged at a record low of 0.5 percent, deciding that the slowly recovering European economy doesn't need further stimulus for the time being.


At his news conference later Thursday, ECB President Mario Draghi is expected to repeat the bank's stance that its interest rate will be the same or lower for an extended period. That is intended to boost business confidence that the ECB won't be scaling back its stimulus efforts until the recovery is on stronger footing.


Still, some money market rates haven't followed the ECB's script, and have risen slightly since Draghi announced the long-term guidance for low rates. Last month, he called some of those rate rises "unwarranted" and may repeat the effort to talk them down.


Some market interest rates have risen on anticipation that the U.S. Federal Reserve will scale back its bond-purchase program and on speculation that the European economy may recover more quickly than expected.


Draghi doesn't want these rates to rise because the economy still needs the help from cheap credit, which can encourage businesses to borrow and expand. Borrowing remains weak despite a somewhat brighter picture and economists say a pick-up in credit will be one sign of a stronger expansion.


The 17 European Union member countries that used the euro emerged from recession in the second quarter. The economy grew 0.3 percent from the quarter before, breaking a string of six quarters of sliding output. However, economists say the eurozone will have to show stronger growth than that to lower unemployment, currently at a record 12.1 percent.


At the news conference, the ECB may raise its economic growth forecast for this year slightly, from minus 0.6 percent.


The ECB has room to keep rates low for a long time because inflation remains low. It was an annual 1.3 percent in August, well below the ECB's goal of just under 2 percent. Low rates can worsen inflation in a growing economy, but it seems it will be a while before the ECB has to worry about that.


Associated Press


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