THE EUROPEAN CENTRAL Bank (ECB) broke with its policy of not speculating on future actions after it declared it will keep record low interest rates for an ‘extended period’.
At ECB’s monthly meeting, President Mario Draghi said that ‘market volatility’ was the reason behind the decision to offer ‘forward guidance’. The ECB kept its base rate at the record low level of 0.5 per cent with Reuters reporting that he gave no specific indication of the ECB’s plan for the rate over the next year, “It’s not six months, it’s not 12 months. It’s an extended period of time.”
To add to the surprise of the meeting, Draghi added that not only would rates remain low but he said the council discussed the option of cutting them further. The poor growth figures outlined by Draghi left no doubt as to why the ECB discussed taking this bold step.
Real GDP declined by 0.3 per cent in the first quarter of 2013, following a contraction of 0.6 per cent in the last quarter of 2012. At the same time, labour market conditions remain weak.
The announcement from Draghi came soon after new Bank of England governor Mark Carney made a similar pledge about its future rate. At his first committee meeting, Carney’s statement said that market assumptions of an imminent rate rise were ‘not warranted’.
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