By BridgeNews
Frankfurt--Feb. 15--The European Central Bank left its key interest rate unchanged Thursday following the regular fortnightly meeting of its decision-making governing council. The decision was widely expected and came just two days ahead of a key meeting of global financial officials. Analysts are still expecting the ECB to lower cost of funding soon, but most see a 25-basis-point cut to 4.50% in the key rate at the end of the second quarter.
* * * The ECB announced that its "leading" minimum bid rate at the regular two-week refinancing will stay at 4.75% for now. The emergency funding rate remains at 5.75% and the deposit facility remains 3.75%. Finance ministers and central bankers of the Group of Seven industrialized countries meet Saturday in Palermo, Italy, for a routine discussion of global economic conditions. A German finance official said Wednesday that ECB policy is unlikely to be on the agenda for discussion. However, U.S. and Japanese pressure is growing on Europe to boost economic growth, possibly via a cut in interest rates. This was most clearly expressed when the International Monetary Fund in January said the euro zone should help "sustain global growth in a context of weakening growth elsewhere," and said Europe should consider easier monetary conditions.
Out of 30 ECB "watchers" surveyed last week, only one expected a rate cut on Feb. 15. Another 25 saw the rate holding steady at 4.75% until the end of the first quarter, while the remaining five expect a quarter-point reduction to 4.50% within the first half of this year.
The ECB last changed rates with a 25-basis-point increase in its minimum bid rate on Oct. 5. Since that time, however, many fundamental factors in its decision making have either reversed or altered radically. The euro has risen by around 10 U.S. cents and oil prices have dropped quite steeply--taking pressure off headline euro-zone inflation. In addition, euro M3 money supply, the ECB's "first pillar" of its strategy, has slowed down steadily. The last reading gave a velocity of 4.9% year-on-year for December, slowing toward its reference value of 4.5%. More