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Version 2 Version 3
European Central Bank Keeps Key Rate at 0.5% Draghi Signals Slight Optimism for Europe’s Prospects
(about 3 hours later)
FRANKFURT — The European Central Bank left its benchmark interest rate unchanged Thursday, amid signs that the euro zone economy could be slowly coming back to life. FRANKFURT — The euro zone has stabilized markedly in the last year, Mario Draghi, the president of the European Central Bank, said on Thursday, as he offered an ever so slightly more upbeat assessment of the prospects for growth.
The E.C.B. kept its main rate at a record low of 0.5 percent, as expected. Recent surveys of business sentiment have raised hopes that the euro zone economy could be emerging from recession. Any recovery will probably be weak, though, and insufficient to make a significant dent in euro zone unemployment that has remained at a record high of 12.1 percent for four months. “The picture seems to be better from all angles than it was a year ago,” Mr. Draghi said at a news conference after the E.C.B.'s decision to leave its benchmark interest rate unchanged at a record low of 0.5 percent.
In a news conference, Mario Draghi, the central bank’s president, said the E.C.B. would keep rates at their current level or lower for “an extended period,” on the expectation of “a gradual recovery in economic activity in the remaining part of the year and in 2014.” Mr. Draghi was referring to questions about the euro zone’s integrity, though, and less to the immediate prospects for an end to recession and record unemployment.
With E.C.B. interest rates already at record lows, Mr. Draghi has been trying to use his powers of persuasion to talk down market rates and make credit more available to businesses and consumers. Last month, he broke with precedent by promising to keep rates low for an extended period. Before then, the E.C.B. had refused to offer so-called “forward guidance.” The fragile state of the euro zone economy means that any decision to raise interest rates is still a long way off, Mr. Draghi indicated. Policy makers expect “the key E.C.B. interest rates to remain at present or lower levels for an extended period of time,” Mr. Draghi said, repeating a pledge he first made a month earlier.
But that statement by Mr. Draghi does not appear to have had much effect, some analysts said. And it is likely that some members of the E.C.B. governing council pushed for a rate cut when they met on Thursday. In London on Thursday, Britain’s central bank, the Bank of England, also decided to hold interest rates steady.
“The forward guidance impact on market rates has been muted at best,” analysts at Nomura said. The Bank of England held its interest rate at 0.5 percent, already a record low, and made no change to its program of economic stimulus, leaving the target at £375 billion, or about $570 billion. In Britain, which does not use the euro, the government had reported last week that the economy grew 0.6 percent in the second quarter from the previous quarter and that all main industries were reporting faster growth for the first time in three years.
The E.C.B. was expected to announce Thursday that it would begin disclosing the minutes of governing council meetings, a change that would help analysts better understand the workings of the central bank and make its actions more predictable. For Mr. Draghi, it has been about a year since he defused fears of a euro zone breakup by promising to do “whatever it takes” to keep the common currency together. That expression of resolve helped check the euro zone’s decline, but was not enough to push the region onto a growth pathagain.
In an interview with the Süddeutsche Zeitung in Munich earlier this week, Mr. Draghi said he was in favor of disclosing the minutes. Asked to take stock of the state of the euro zone today, Mr. Draghi listed numerous improvements, including stronger exports from countries like Spain and Italy; lower market interest rates for government bonds; and progress by political leaders in reducing their deficits and improving economic performance.
The change would bring the E.C.B. another step closer to adopting procedures used by the United States Federal Reserve. For its part, the Fed has emulated the E.C.B. practice of holding regular news conferences to discuss policy. “We are seeing possibly the first signs this significant improvement in confidence and interest rates is finding its way to the economy,” Mr. Draghi said.
Though fears of a euro zone breakup have largely receded, the Continent continues to struggle to return to growth. Even if a recovery materializes, it is likely to be tentative. And it could be years before countries like Spain and Greece are growing strongly enough to bring their high unemployment rates — above 25 percent — back to acceptable levels. But he took a more cautious view than many analysts of recent surveys of business sentiment, which have raised hopes that the euro zone economy could be emerging from recession. The surveys “tentatively confirm the expectation of a stabilization of economic activity at low levels,” Mr. Draghi said.
The E.C.B.'s job has been complicated recently by signs that the Federal Reserve could begin to gradually roll back its economic stimulus in the United States. On Wednesday, the Fed indicated it would continue its bond-buying stimulus program for at least another month. At least one analyst detected a nuanced shift in Mr. Draghi’s assessment.
Expectations of an eventual tighter United States monetary policy have unsettled financial markets in Europe, prompting Mr. Draghi to reassure investors that the E.C.B. is a long way from going in the same direction. “If there was any change at all, his description of economic prospects sounded slightly more optimistic,” Jörg Krämer, chief economist at Commerzbank in Frankfurt, said in a note to clients.
“Slightly” is the key word. Credit for businesses remains scarce, Mr. Draghi noted, and the labor market is weak. Unemployment in the euro zone was stuck at a record high of 12.1 percent in June, according to official data published Wednesday, though there was an infinitesimal decline in the total number of jobless people: 24,000 fewer people were out of work in May out of a total of 19 million.
Even if the euro zone economy does emerge from recession soon, economists say, growth will be weak and it will take years before joblessness in countries like Spain — where more than a quarter of the work force is unemployed — returns to tolerable levels.
With E.C.B. interest rates already at record lows, Mr. Draghi has in recent months been trying to use his powers of persuasion to talk down market rates and make credit more available to businesses and consumers. Last month, he broke with precedent by promising to keep rates low for an extended period. Before then, the E.C.B. had refused to offer so-called forward guidance.
On Thursday, Mr. Draghi contested comments by some analysts that his forward guidance has not had much effect. It was successful in calming financial markets, he said, and partly successful in pushing down short-term market interest rates.
He left open the possibility that interest rates could fall further, but refused to say whether members of the E.C.B.'s Governing Council discussed a rate cut when they met on Thursday.
The E.C.B.'s job has been complicated recently by signs that the U.S. Federal Reserve could begin to gradually roll back its economic stimulus. On Wednesday, the Fed indicated it would continue its bond-buying program for at least another month.
Expectations of an eventually tighter U.S. monetary policy have unsettled financial markets in Europe, prompting Mr. Draghi to reassure investors that the E.C.B. was a long way from going in the same direction.
In answer to numerous questions from journalists, Mr. Draghi also confirmed that the E.C.B. was likely to start disclosing more information about the discussions that take place among the 23 members of the bank’s Governing Council, which includes all the heads of euro zone central banks.
Such a change would be designed to help analysts and the media better understand the workings of the central bank and make its actions more predictable. More disclosure would also bring the E.C.B. another step closer to adopting procedures used by the Federal Reserve. For its part, the Fed has emulated the E.C.B. practice of holding regular news conferences to discuss policy.
But Mr. Draghi suggested that the E.C.B. would not disclose detailed minutes, to avoid subjecting members of the council to political pressure in their home countries. Members of the council are supposed to represent the interests of the euro zone as a whole. The council will consider proposals for more disclosure in the autumn, Mr. Draghi said.
He said the aim of a new disclosure policy would be “to be able to provide you and the markets greater and richer information without putting into question the independence of individual members, without politicizing the process. That’s where the challenge is.”

Julia Werdigier contributed reporting from London.