ECB keeps rates low as Ukraine conflict casts cloud over Europe

Aug 08 2014, 02:23 IST
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SummaryPins hopes on lending measures to bolster a struggling euro zone economy

The European Central Bank held borrowing rates on Thursday as it pinned its hopes on lending measures to bolster a struggling euro zone economy facing further damage from the Ukraine conflict.

Having cut interest rates to record lows in June, the euro zone’s central bank kept them steady, waiting to see whether schemes such as the ultra-cheap four-year loans to banks it will launch in September will prompt them to lend more.

The decision by the ECB’s Governing Council, with representatives from the 18 countries that use the euro, had been expected by economists.

Many are now shifting their attention to next year, when they hope the ECB will follow the US and other major central banks in launching a money-printing programme known as quantitative easing to buy assets such as government bonds.

“The euro zone is at a crossroads and the economy can go either way,” said James Knightley, an economist with ING.

“We are starting to see some signs of stagnation and the geopolitical situation is adding to the risks. Can the weaker euro and better credit conditions offset that? If they don’t, that will force the ECB’s hand,” Knightley added.

In June, the ECB became the first major central bank to charge banks for holding their deposits overnight, a step designed to stop them hoarding cash and lend instead. It will also roll out the new programme of cheap loans tied to lending to smaller euro zone businesses from next month.

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