The ECB’s decision to leave its benchmark refinancing rate at the record low where it has stood since May 2009 was widely expected. Attention was focused on ECB President Jean-Claude Trichet’s post-decision news conference. The ECB was due to issue revised growth forecasts and was seen as likely to lift its prediction for 2010 from a range centering on 1 percent.
However, the figure given in June for 2011 could be revised down from a range centering on 1.2 percent amid mounting concerns about the pace of the US recovery. Japan’s economic outlook has darkened as the yen’s rise pressures its exporters at a time when its economy is barely growing, and there also have been signs of cooling growth in China.
Europe’s economic rebound has largely been fed by a recovery in global demand. Eurozone exports grew by 4.4 percent in the second quarter. That is why Trichet was expected to signal that it’s no time to discuss interest rate hikes. Higher rates would help ward off inflation as the economy bounces back but could dampen growth. Strong growth in traditionally export-led Germany helped the 16-nation eurozone’s economy to grow 1 percent in the second quarter over the previous three months. That pace is likely to cool, although Trichet said last month that third-quarter indicators so far were better than expected. The ECB isn’t expected to make substantial changes to the remaining special liquidity arrangements for banks that were introduced at the height of the financial crisis, as it is well aware that the cost of sorting out the government debt crisis in a number of countries in Europe will be heavy. US Federal Reserve chairman Ben Bernanke recently conceded that the Fed may have to back another round of monetary easing if the US economy continues to weaken. but doesn’t use the euro.
