Recent economic studies and indicators show signs of stabilization in the euro area, suggesting an improvement of the region’s economy in the coming months, announced Thursday the European Central Bank (ECB).
“The economic weakness in the euro area is expected to extend into 2013. Later, in 2013, economic activity should gradually recover. Several… indicators have broadly stabilised, albeit at low levels and financial market confidence has improved significantly,” said ECB President, Mario Draghi.
Draghi reiterated the ECB’s view that inflation in the eurozone, which stood at 2.2% in December, will fall below 2% this year. ECB chief warned of the risks facing the euro area countries due to the “slow implementation of structural reforms.” ECB asked the heavily indebted governments to take measures to reform the labor market and improve the economic growth.
All members of the ECB Governing Council agreed to maintain the benchmark interest rate at 0.75% at Thursday’s meeting, said Mario Draghi. He added that “the decision was unanimous, and it means that there were no calls for interest rate cut.” Also, the ECB chief said that sovereign bond yields have significantly fallen while stock markets are stronger and less volatile. Draghi also referred to strong capital inflows in euro area and the rise of bank deposits from eurozone periphery states. “But all this has not yet found its way into the real economy. So there is no reason to change the medium-term outlook for price stability,” said the ECB president.
ECB lowered the key rate in early July by 0.25 percentage points, from 1% to 0.75%, and reduced the deposit rate to zero, both indicators reaching historic lows.
Draghi announced in September a plan for unlimited purchases of bonds of countries with financing problems on the international market. None of the countries with difficulties have so far asked for ECB support, but the announcement of the program was sufficient to lower the borrowing costs of countries like Spain and Italy without the central bank intervention on the bond market.
The Bank of England also announced Thursday that it keeps the key lending rate at a record low of 0.5%, set in March 2009 and the ceiling of bond purchases program at 375 billion pounds.
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