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ECB keeps eurozone rates on hold Eurozone economy 'to shrink 4.6%'
(20 minutes later)
The European Central Bank (ECB) has kept eurozone interest rates on hold at 1%, in a move that had been widely expected by analysts. The eurozone economy will shrink by 4.6% in 2009, the European Central Bank has said, a much bigger contraction than its previous forecast of 2.7%.
Unemployment in the eurozone hit a 10-year high in April, although there have also been some signs of improvement. The bank said it expected a marked improvement next year, with positive growth to return by mid-2010.
Analysts said the ECB was not keen to cut rates again for fear of sparking deflation after May's official eurozone inflation figure came in at 0.0%. The comments came after the ECB kept eurozone interest rates on hold at 1%, in a move widely expected by analysts.
Analysts said the ECB was keen to avoid sparking deflation, after May's eurozone inflation figure hit 0.0%.
The Bank of England also kept UK rates on hold at 0.5% on Thursday.The Bank of England also kept UK rates on hold at 0.5% on Thursday.
Quantitative easingQuantitative easing
ECB president Jean-Claude Trichet said that the contraction of the eurozone economy would stabilise, with growth expected to return to the eurozone by "mid-2010". The ECB's president, Jean-Claude Trichet, is also set to give more details of how plans first announced last month to buy 60bn euros of company bonds ($85bn; £52bn) are progressing.
He is expected to give more details of how plans first announced last month to buy 60bn euros of company bonds ($85bn; £52bn) were progressing.
The ECB is buying the bonds as a means to increase the amount of money in the financial system - a policy known as quantitative easing - to try to help the economy by returning lending by commercial banks to normal levels.The ECB is buying the bonds as a means to increase the amount of money in the financial system - a policy known as quantitative easing - to try to help the economy by returning lending by commercial banks to normal levels.
So far it has been far more cautious with its quantitative easing than the Bank of England and Federal Reserve, a decision that has been greatly welcomed by the German government.So far it has been far more cautious with its quantitative easing than the Bank of England and Federal Reserve, a decision that has been greatly welcomed by the German government.
Berlin has long cautioned against the more aggressive stance taken in London and Washington, saying it builds up too much debt for the future.Berlin has long cautioned against the more aggressive stance taken in London and Washington, saying it builds up too much debt for the future.
The ECB last cut rates in May, when they were reduced to 1% from 1.25%. It has reduced rates seven times since last October, when rates stood at 4.25%.The ECB last cut rates in May, when they were reduced to 1% from 1.25%. It has reduced rates seven times since last October, when rates stood at 4.25%.