ECB Holds Benchmark Rate as Europe Dips Back Into Recession
The euro area has dipped right back into a recession after a 0.1 percent contraction, though it’s a little more hopeful for next year, as current rates are stagnated, possibly until 2014. The European Central Bank held the benchmark rate at 0.75 percent Thursday, an all-time low, and kept the deposit rate at zero. It held interests steady after lowering borrowing costs and increasing confidence when it pledged to buy government bonds.
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The Bank of England also held it’s key interest rate, though slightly lower at 0.5 percent. England expects the ECB to lower rates further next year, possibly bring the benchmark rate down to 0.25 percent. German economist Ulrich Kater expects solid euro area growth next year with no rate changes. The European Commission even predicted a 0.1 percent expansion next year, with the ECB predicting 1 percent growth for 2014.
It’s not all growth, with Spanish and Italian bond yields dropping to recent lows of 5.25 percent and 4.42 percent, respectively. The drops come as ECB President Mario Draghi announced an unlimited bond-purchase program to help ease strain on the region. The program has not yet gone into effect, as no countries have fulfilled the prerequisites. Germany is worried that the program may increase inflation, but Draghi assures it won’t.
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