The European Central Bank has kept its gunpowder dry
again, holding its key interest rates unchanged for the fifth
month in a row. But in New Zealand, rates are likely to rise
again in three weeks. Business editor Dene Mackenzie looks at
European Central Bank governor Mario Draghi kept the
central bank's refinancing rate unchanged at 0.25%. Photo
The European Central Bank left its central ''refi'', or
refinancing rate, unchanged at 0.25% at its monthly policy
meeting this week.
The central bank also held its other two key rates - the
marginal lending rate and the deposit rate - unchanged at
0.75% and 0% respectively.
The ECB last pared back euro zone borrowing costs in
And while few ECB watchers had been betting on a further cut
this month, there was still some expectation the central bank
might ease monetary conditions in the 18 countries at some
point to ward off the spectre of deflation.
For the time being, ECB officials reject suggestions the euro
area is in danger of slipping into deflation - the
destructive spiral of falling prices in which consumers put
off purchases, thus destroying salaries, jobs and investment.
The EU statistics agency Eurostat put area-wide inflation at
just 0.5% in March, down from 0.8% in February, way below the
ECB's target of just below 2.0%.
Bank president Mario Draghi said the ECB was determined to
maintain euro zone easy-money policies and would take rapid
action if needed.
The bank ''remains resolute in our determination'' to keep
monetary conditions in the euro area accommodative and would
''act swiftly'' if necessary, Mr Draghi said amid concerns
about possible deflation.
''We do not exclude further monetary easing,'' he told a
In its determination to keep deflation at bay in the euro
zone economy and the recovery on track, the ECB was prepared
to use not just conventional monetary policy tools such as
interest rates, but non-standard measures as well, he said.
Those included so-called quantitative easing, or injecting
cash into the market through the issuance of treasury bonds.
The ECB also took exchange rates into account when setting
interest rates, but has no firm target for the euro-US dollar
The exchange rate was very important for price stability but
it was not a policy target, Mr Draghi said.
Bank of New Zealand chief economist Tony Alexander said the
next rise in New Zealand rates was expected in three weeks,
when the Reserve Bank next reviewed its monetary policy.
It raised the official cash rate to 2.75% last month.
It should be noted that although the Reserve Bank had imposed
credit controls on home buyers, there was no obvious slowing
in the pace of debt growth, backing up the contention the
controls had mainly pushed first-home buyers out of the
housing market and provided more space for other groups, such
''This week, wholesale interest rates have moved higher with
increased borrowing for fixed terms and the simple passage of
time bringing us closer to the next expected official cash
rate increase on April 24,'' he said.
Like New Zealand Prime Minister John Key, British Prime
Minister David Cameron is likely to go into an election
campaign in a climate of rising interest rates.
Bank of England governor Mark Carney said interest rates
could increase ahead of the next general election but he
wanted to see more jobs created in the northeast of the
country before he would intervene.
The governor told the Northern Echo interest-rates rises
would be ''gradual'' even though Britain's economy was
growing faster than that of any of the world's developed
''We are one year into a recovery, but it is an uneven
recovery. Our job is to help turn this into a strong,
sustainable and balanced expansion. This is not about getting
back to where were were in 2008. Our aspirations are much
higher,'' he said.
The Bank of England would set policy as appropriate to fulfil
its core responsibility to meet the 2% inflation target but
it had not set timing conditions on that, Mr Carney said.
Reserve Bank of Australia governor Glenn Stevens left the
Australian central lending rate unchanged at 2.5% this week
but hinted the next move would be upwards after an extended
period of stable interest rates.
Growth in the global economy was slightly below trend in
2013, but there were reasonable prospects of an improvement
The United States economy, while affected by adverse weather,
continued its expansion and the euro area had begun a
recovery from recession, albeit a fragile one. Japan had
recorded a ''significant'' pick-up in growth. China's growth
remained generally in line with policymakers' objectives,
although it might have slowed early this year. Commodity
prices had fallen from their peaks but remained high in
historical terms, he said.
Financial conditions overall remained accommodative.
Long-term interest rates and most risk spreads remained low.
Equity and credit markets were well placed to provide
adequate funding but for some emerging market countries,
conditions were more challenging than a year ago.
In Australia, the economy grew at a below-trend pace last
year, Mr Stevens said.
''Recent information suggests slightly firmer consumer demand
over the summer and foreshadows a solid expansion in housing
''Some indicators of business conditions and confidence have
improved from a year ago and exports are rising.''
But at the same time, resources sector investment spending
was set to fall significantly and, at this stage, signs of
improvement in investment intentions in other sectors were
Looking ahead, continued accommodative monetary policy should
provide support for demand and help strengthen growth.
Inflation was expected to be consistent with the 2% to 3%
target over the next two years, Mr Stevens said.
Selected central interest rates
Russia, 7%; China, 6%; Mexico, 3.5%; New Zealand, 2.75%;
Australia, 2.5%; South Korea, 2.5%; Canada, 1%; Bank of
England, 0.5%; ECB, 0.25%; United States, 0.2%; Japan, 0.1%.