Despite Soaring Euro and Growth Worries, European Central Bank Leaves Key Interest Rate Untouched
Published:
13 January 2004 y., Tuesday
The European Central Bank left its key interest rate untouched Thursday, even as a soaring euro made some economists worry about prospects for growth in the 12 countries that use the currency.
The bank's 18-member governing council left the refinancing rate at 2 percent, where it has been since a half-point cut in June.
The Bank of England also left its benchmark lending rate unchanged Thursday at 3.75 percent.
The European Central Bank's decision was widely expected, shifting the attention to any statements that bank President Jean-Claude Trichet might make afterward on the euro, which hit an all-time record of $1.2812 on Tuesday.
So far Trichet has not expressed great concern that the stronger euro will hurt the economy by dampening exports, and put pressure on the bank to cut rates. But the rally has quickly outrun many economists' predictions and raised questions about what the bank thinks now.
The bank's potential quandary is this: It's already cut interest rates to near rock-bottom levels, but the stronger euro could hurt growth by making European exports more expensive compared to competing goods from foreign producers. A rate cut could provide economic stimulus.
The bank's main goal, however, isn't growth but curbing inflation, which could be worsened by a cut at the wrong time. And its inflation projection for next year has crept up from around 1.3 percent to around 1.8 percent.
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