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ECB Holds Rate Steady as Deflation Looms

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ECB Holds Rate Steady as Deflation Looms

The European Central Bank left its benchmark lending rate unchanged Thursday, opting instead to wait for more compelling evidence the Eurozone was succumbing to deflation.

The benchmark lending rate is at 0.25 percent, unchanged since November, when the ECB cut the cost of borrowing in half to combat the lowest rate of inflation growth in four years. Thursday’s decision was in-line with the median estimate of economists polled by Reuters.

At a news conference today ECB President Mario Draghi dispelled the notion the Eurozone was experiencing deflation, but did acknowledge prices were rising at a slower pace than expected.

“Developments in global money and financial market conditions and related uncertainties, notably in the emerging market economies, may have the potential to negatively affect economic conditions,” Draghi said in a news conference. “The reason for today’s decision not to act has really to do with the complexity of the situation… Further information and analysis will become available in early March.”

Eurozone inflation slowed from 0.8 percent to 0.7 percent in January, raising concern the currency bloc would struggle to recover from record-long recession. With inflation falling back to four-year lows last month, some market voices are speculating whether negative deposit rates loom over the horizon. The central bank has made it abundantly clear it is prepared to use every tool in its arsenal to ensure the Eurozone doesn’t fall back into recession.

The ECB’s next rate decision takes place March 6. Another month of unfavourable data is sure to prompt decisive action on the part of the ECB, at least in the eyes of some economists.

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