By DPA,
Frankfurt : The European Central Bank (ECB) is expected to leave interest rates on hold at an historic low of 1 percent Thursday as it faces up to a string of new challenges.
The question for the 22 members of the ECB’s rate-setting council will be how to balance out concerns about deflation, tighter credit and rising unemployment against signs that the 16-member eurozone has started to emerge from the world’s steepest economic slump in over 60 years.
The economic uncertainty unleashed by the downturn along with evidence that consumer prices have tumbled deeper into negative territory has led analysts to believe that the ECB will keep its benchmark refinancing rate on hold well into 2010.
But with the ECB having pumped a massive injection of funds into the eurozone’s economy, analysts do not expect the bank’s governing council is likely to announce this week any new measures to help spur economic growth.
Eurozone rates have been on hold since May with the ECB having delivered up until then a series of rapid-fire cuts aimed at shoring up economic confidence as the global financial crisis gained force. The bank’s benchmark refinancing rate stood at 4.25 percent in October last year.
To be sure, it is a sign of the scale of the downturn that has ravaged the eurozone over the last 12 months that the ECB is meeting at all this month.
Like the financial markets across Europe, the ECB normally winds down this time of year for the European summer.
But as a reminder of the fragile state of the global economy, data released Wednesday showed eurozone retail sales coming in worse than expected in June, amid concerns about wages and jobs as the recession catches up with the currency bloc’s labour market.
The volume of retail trade in the eurozone fell month by month by 0.2 percent in June, the Europe Union’s (EU) statistics office said. Economists had forecast a 0.3 percent rise.
This followed data released last week showing eurozone unemployment jumping to 9.4 percent in June to reach its highest level in a decade.
In the meantime, consumer prices in the eurozone fell more than forecast from minus 0.1 percent in June to minus 0.6 percent last month, the EU’s statistics office said last week.