ECB in no hurry to raise rates

Bloomberg

The ECB won’t substantially alter its assessment of the economic outlook and "therefore I also don’t see a likelihood for rate changes," Nowotny said in an interview in Vienna on June 19. "If the economy is developing in the way that we expect, I do not see a perspective for this year and we will need to look again next year."

The ECB kept its benchmark rate at a record low of 1 percent this month and said it expects the euro-region economy to contract about 4.6 percent this year before returning to growth by the middle of 2010. The Frankfurt-based bank will step up its response to the crisis tomorrow when it launches its first auction of 12-month money for banks at the benchmark rate.

While the ECB has left the door open for another rate cut if needed, Nowotny said commercial banks are expected to show "substantial interest" in the 12-month loans and suggested that’s partly because they understand the cost of borrowing is unlikely to drop further. At the same time, he indicated the ECB has room to hold rates at their historic low to help the economy out of its slump and prevent an extended period of stagnation.