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ECB keeps rates on hold after Fed move

ECB keeps rates on hold after Fed move

The European Central Bank left its main interest rate unchanged at a record-low 1 percent on Thursday following the U.S. Federal Reserve's launch of a new bond-buying program aimed at reinvigorating the economy.
The ECB's decision to leave its benchmark refinancing rate on hold for the 18th consecutive month was widely expected, leaving the focus on the bank's future policy plans.
The bank has shown no inclination to follow the lead of the Fed, which in a much-anticipated move Wednesday said it will buy $600 billion of long-term government bonds by mid-2011 to expand the money supply and further drive down rates on mortgages and other debt.
That will be in addition to an expected $250 billion to $300 billion in purchases over the same period from reinvesting proceeds from the Fed's mortgage portfolio.
The move was well-telegraphed and in line with market expectations, but market anticipation of it has weighed heavily on the dollar for weeks and the announcement helped push the euro above $1.42 Thursday to a new nine-month high.
If the dollar continues to slide against the euro, that could raise worries about the possible impact on European exports.
Last month _ as the euro crossed the $1.40 mark, more than 20 cents above its level at the height of this year's eurozone debt crisis _ ECB President Jean-Claude Trichet voiced his concern about excess volatility in exchange rates.
While the U.S. economy has stuttered, the eurozone economy has outperformed expectations recently despite ongoing debt problems in a number of countries, like Greece, Ireland and Portugal.
Month by month, Trichet has been noting the stronger than anticipated economic recovery, a development which would push the bank toward withdrawing emergency measures such as added credit for banks and purchases of government bonds in the open market.
Last month, Trichet pointed to an ongoing decline in banks' liquidity demands as a sign of the "process of normalization" _ a suggestion that the bank is preparing to phase out more of its crisis lending programs, possibly as soon as December.
Still, tensions remain over debt troubles. On Thursday, investors dumped Irish bonds ahead of an announcement of deficit-cutting plans _ reflecting skepticism that Ireland can rapidly reverse its huge budget deficit without driving its economy deeper into recession.
Also on Thursday, the Bank of England held its interest rates steady at a record low of 0.5 percent for the 20th consecutive month as the British economy shows signs of unexpected strength.
The bank also kept its 200 billion pound ($323 billion) asset-purchase program on hold announcement _ declining to follow the Fed in injecting more stimulus into the economy.


Updated : 2021-03-06 07:48 GMT+08:00