ECB keeps eurozone interest rates unchanged at 1.5%

The European Central Bank (ECB) has left interest rates unchanged amid the continuing debt crisis in the eurozone.

ECB President Jean-Claude Trichet: “We expect the euro area economy to grow moderately”

Benchmark rates were kept at 1.5% for the second month, after being raised from 1.25% in July in an attempt to cool inflation.

The ECB has also cut its growth forecasts for the eurozone economy.

It now expects expansion of 1.6% this year, and 1.3% in 2012. Previously it had predicted the economy would grow 1.7% in 2011 and 1.9% next year.

“Looking ahead, a number of developments seem to be dampening the underlying momentum in the euro area,” said ECB president Jean-Claude Trichet.

He said factors that were slowing growth included “ongoing tensions” over the high levels of sovereign debt in the eurozone, falls in business confidence, and the weakening of the global economy.

“As a consequence, real GDP growth is expected to increase very moderately in the second half of this year,” said Mr Trichet.

Bond purchases

Expectations have grown that the ECB may soon have to cut rates if the debt crisis continues and the 17-nation eurozone economy dips back into recession.

The ECB has been buying Italian and Spanish bonds, after weeks of resisting the move, to try to hold down yields and stop those countries’ borrowing costs spiralling out of control.

Earlier, data showed that German exports slowed in July, suggesting the eurozone’s economy may be stuttering.

Separate economic growth estimates from the Organisation for Economic Co-ordination and Development (OECD) said that the German economy could contract by 1.4% in the last quarter of 2011.

The OECD also said that the combined economies of Germany, France and Italy may slow by 0.4% during the same three months.

However, the OECD admitted that its estimates had a wide margin of error due to the continuing economic uncertainty.

Earlier, the Bank of England kept UK interest rates at 0.5%, where they have been since March 2009.


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