ECB says rates low for 'extended period'
Friday, July 5, 2013
FRANKFURT, Germany (AP) — The European Central Bank and the Bank of England on Thursday underlined their determination to keep interest rates low in an attempt to reassure markets unsettled by the possible end of the U.S. Federal Reserve’s bond-buying program.
Abandoning a longtime practice of saying it “never precommits” on interest rate decisions, the ECB said it would now keep its benchmark interest rate the same or lower “for an extended period of time.”
The statement followed a meeting of the bank’s rate council which left the refinancing rate for the 17 European Union countries that use the euro unchanged at 0.5 percent.
Draghi said the decision followed “an extensive discussion” of a potential rate cut.
Instead of a cut, the bank offered what is called “forward guidance”. The practice — already used by the U.S. Federal Reserve — is designed to give markets clarity about central bank’s future course of action in order to influence and reassure markets.
The Bank of England did something similar at its monthly meeting Thursday. Under new governor Mark Carney, the bank issued a statement saying that expectation of a rate rise “was not warranted”.
Markets reacted dramatically to the two banks’ statements. In London, the FTSE 100 index of leading shares was up 3 percent, while Germany’s DAX stock index was up 2.16 percent. Both the euro and pound fell on the two banks’ actions.
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