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European Central Bank assesses auction impact

European Central Bank assesses auction impact

The European Central Bank is expected to keep its key interest rate unchanged Thursday as it awaits to see whether last week's massive liquidity injection will get banks to lend more money to businesses and consumers and support the struggling economy.
As often, attention will center more on what the central bank's president, Jean-Claude Trichet, has to say at the ensuing press conference than on the rate decision itself.
Despite some worries that a corrosive spiral of falling prices may become entrenched in the 16 countries that use the euro currency, most analysts think Trichet will say that the current interest rate is "appropriate" _ indicating that it will not begin raising rates from their record low of 1 percent any time soon.
Prices in the euro are now falling _ in the year to June they fell by 0.1 percent from the previous year. Higher rates are used to combat inflation, but the opposite problem _ sluggish growth, falling prices and weak demand _ remains at the fore.
Recent economic news, such as business sentiment surveys out of Germany, have suggested that the euro zone remains mired in recession but that the scale of the contraction in the second quarter will be less than the 2.5 percent quarterly drop recorded in the first three months of the year.
Many members of the bank's rate-setting governing council have indicated that they would not favor reducing the benchmark rate and had actually begun to talk about the need for exit strategies once economic recovery has been entrenched.
The Frankfurt-headquartered bank, which is holding this month's meeting in Luxembourg, has been criticized by many for not being as aggressive as the U.S. Federal Reserve or the Bank of England both in cutting interest rates or pursuing unconventional measures such as boosting the money supply.
In May, the bank lowered the refinancing rate to its current low and extended the maximum maturity of its bank lending from six months to 12 months. It also pledged to provide unlimited liquidity at the new, longer maturity.
Last Wednesday's


Updated : 2021-08-02 16:58 GMT+08:00