ECB to hold rates amid cautious optimism about euro debt crisis
Frankfurt - The European Central Bank was expected to leave interest rates on hold Thursday, with the ECB likely to use its first session of the year to strike a cautiously optimistic tone about the outlook for the embattled eurozone economy.
Economists expect the ECB’s rate-setting council to leave borrowing costs on hold at their historic level of 0.75 per cent.
But since the bank’s last meeting in December, a series of key indicators have pointed to the eurozone tentatively starting to turn the corner in its battle to end its long-running debt crisis.
"(ECB chief) Mario Draghi may indicate that the governing councilis getting slightly more optimistic on the growth outlook," said Frank Oland Hansen, senior economist with Danske Bank.
Draghi’s commitment last year to do whatever it takes to preservethe euro with unlimited government bond purchases has also helped ease the pressures on government debt markets.
However, hanging over the eurozone’s economic prospects are concerns that Spain might be forced to tap into the eurozone’s bailout fund, as well as renewed global economic turbulence resulting from the conflict in the US political establishment over the nation’s state finances.
The ECB last trimmed rates in July, when it delivered a25-basis-point reduction in its benchmark refinancing rate.
Economists are now divided about whether the bank will consider delivering another cut in the cost of money in the coming months.
While some are predicting that the Frankfurt-based bank’s governing council will trim rates again by June, others question whether a further reduction in borrowing costs will help underpin the region’s growth prospects.
As a result, the market focus is likely to be on Draghi’s press conference following the governing council meeting in Frankfurt for signs of how the bank sees economic and monetary developments unfolding in the coming months.
Data released on Tuesday showed unemployment in the currency bloc hitting a record 11.8 per cent in November.
But on the same day, the European Commission said its closely watched Economic Sentiment Indicator for the eurozone climbed to a six-month high in December as the gloom started to lift across the region’s industry.