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ECB resists outside pressure

May 8, 2014

The ECB has decided to keep interest rates at a record low, falling in line with the predictions of most analysts. It indicated it wasn't overly concerned about deflation worries voiced by some economists.

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ECB headquarters in Frankfurt, Germany
Image: picture-alliance/dpa

The European Central Bank decided at a Thursday meeting in Brussels to keep its main interest rate unchanged at 0.25 percent.

The ECB held the benchmark interest rate at its current record low for the sixth month in a row despite the urging of some to lower interest rates.

Earlier this month, both France's Prime Minister Manuel Valls and the Organisation for Economic Cooperation and Development (OECD) called for more stimulus as the euro crept towards a 2.5-year high.

They urged the ECB to reduce borrowing costs, wanting it to reduce interest rates from to zero from 0.25 percent and launch a new monetary stimulus plan.

Following Thursday's Governing Council meeting, many analysts now believe that the ECB is likely to wait until it releases new inflation and economic growth forecasts in June before cementing future action.

At a press conference following the meeting, ECB President Mario Draghi signaled plans to act next month to ward off the threat of low consumer prices when the ECB receives its latest growth and inflation projects.

The ECB Governing Council is "comfortable with acting" next month, Draghi said. "We want to see the staff predictions [on inflation and growth] before responding."

Draghi also expressed worries over the strength of the euro.

"The strengthening of the exchange rate in the context of low inflation and weak economic activity is a cause for serious concern," he said.

Following Draghi's predictions, the euro slipped back below $1.39 on Thursday afternoon.

Deflation worries

The Frankfurt-based ECB last cut the cost of money in November, when it lowered its benchmark refinancing rate by 25 basis points to 0.25 percent.

Since then Draghi has warned that the 18-member eurozone could be facing a protracted period of low inflation as the currency bloc's cash-strapped southern members struggle to emerge from a long-time recession and a stronger euro drives down prices.

ECB sees no deflation

Inflation in the eurozone jumped to 0.7 percent in April. That's up from 0.5 percent in March, but still below expectations, which helped ease pressure on the ECB as it decided whether to take action against the threat of deflation.

rs/hg (dpa, Reuters)