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Economy

ECB breaks with tradition, giving 'forward guidance'

Europe's Central Bank has left its key interest rate unchanged at a record low. And, for the first time in the bank's history, there was an indication of the path that future rate-setting policy would follow.

In announcing that interest rates remain unchanged for the foreseeable future, European Central Bank (ECB) chief Draghi was giving forward guidance on future rate changes for the first time. The transparency about future policy is seen as a tool to help build market confidence.

Draghi announced on Thursday that interest rates for the 17 countries that use the euro would remain at their current record low of 0.5 percent.

The low rate remains in place for the third month in a row in an effort to reduce business expansion costs. Draghi said the ECB was in no hurry to bring to an end its stimulus measures for the weak eurozone economy.

Draghi woos investors with more cheap money

"The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time," Draghi told a news conference. "Monetary policy will remain accommodative for as long as necessary."

"Our exit (from low interest rates) is very distant," he added.

Following a pattern

Earlier on Thursday, the Bank of England's new governor Mark Carney also gave an indication of future rate patterns, setting Britain's key interest rate at 0.5 percent. The US Federal reserve has also recently adopted a policy of giving forward guidance.

Draghi added that the decision about the unchanged rate had been made after "extensive debate" but that it had been "unanimously agreed."

The ECB also left its two other rates unchanged. The deposit facility - the amount of interest on cash that banks deposit overnight - stays at zero percent. There had been speculation that the bank would cut that rate to encourage lending rather than hoarding. However, Draghi has in the past indicated that this could have "unintended consequences."

Meanwhile, the marginal lending rate - applied to emergency borrowing for banks unable to obtain lending in the wholesale market - is unchanged at 1 percent.

rc/jm (AFP, AP, dpa, Reuters)

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