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ECB holds interest rates at 2% after series of cuts

Published 02/05/2009, 07:48 AM
TGT
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FRANKFURT, Feb 5 (Reuters) - The European Central Bank held interest rates at 2.0 percent on Thursday, taking a widely-expected breather from rate cuts even though the euro zone economy continues to weaken.

The ECB has lopped 225 basis points from benchmark credit costs since early October, but said after a 50 basis point cut on Jan. 15 that its February meeting would not be important for monetary policy.

In a Reuters poll, 82 of 85 economists forecast rates would remain on hold but the same number forecast a cut in March.

Financial markets has also expected no change this month and turned their attention to March, where Eonia interest rate futures are broadly pricing in 50 basis points of easing.

ECB President Jean-Claude Trichet will explain the Governing Council's decision at a news conference at 1330 GMT, where analysts will be looking for signs of how much the ECB will cut rates next month.

Since the last meeting, economic indicators have weakened further and the annual inflation rate fell to 1.1 percent in January, well under the ECB's target of below, but close to 2 percent.

Loans to euro zone firms and households fell in December for the first time in the ECB's 10-year history, raising the risk that consumer and corporate spending has further to fall.

Money supply growth, a key indicator of price pressures for the ECB, also slowed more than expected, unemployment rose in December more than expected and November industrial orders plummeted. (Reporting by Sakari Suoninen; editing by David Stamp)

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