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ECB keeps interest rates on hold at 0.25% ECB holds rates but Draghi hints at policy change
(about 2 hours later)
The European Central Bank (ECB) has kept its benchmark interest rate at a record low of 0.25%. European Central Bank president Mario Draghi has hinted the bank's policymakers may act soon to reverse the eurozone's prolonged low inflation.
Persistently low inflation across the euro-bloc has prompted growing calls that the ECB should cut rates to head off deflation risks. The ECB chief said on Thursday that the monetary authority was "not resigned" to low inflation, which at 0.7% is well below the 2% target.
But rate-setters at the Bank may have been buoyed by recent economic data pointing to a stronger recovery and improved financing conditions. The comments followed that ECB's decision to keep its benchmark interest rate at a record low of 0.25%.
Earlier on Thursday, the UK's Bank of England held interest rates at 0.5%. Low inflation makes it harder for people and businesses to reduce debt.
Persistently low inflation across the eurozone has prompted growing calls for the ECB to cut rates to head off deflation risks.
But some analysts believe that recent positive economic data and improved financing conditions have reduced the urgency to act.
Mr Draghi said that the ECB would have new projections in June on the likely direction of inflation.
He said that the 24-member ECB council was "dissatisfied about the projected path of inflation" and is "not resigned to have too low inflation for too long a time".
However, he added that the ECB was "comfortable with acting next time", raising expectations that the bank could alter policy in June.
The euro fell on the comments to below $1.39, having earlier broken the $1.40 mark for the first time since November 2011.
Eurozone interest rates have been unchanged since November 2013.Eurozone interest rates have been unchanged since November 2013.
ECB president Mario Draghi has been saying for months that the bank expected "a prolonged period of low inflation". Mr Draghi has been saying for months that the bank expected "a prolonged period of low inflation".
Eurozone inflation in April was 0.7%, up from 0.5% in March, but still well below the ECB's target of about 2%. He said in April that if the inflation outlook was to deteriorate, the ECB could respond with a "broad-based asset purchase programme", probably quantitative easing - effectively printing money to buy assets.
Mr Draghi said in April that if the inflation outlook was to deteriorate, the ECB could respond with a "broad-based asset purchase programme", probably quantitative easing - effectively printing money to buy assets.
Speaking at a press conference after the latest ECB decision, Mr Draghi said that the "moderate economic recovery... is proceeding in line with our expectations".
However, he added that the ECB was "comfortable with acting next time", raising expectations that the bank could alter policy in June and sending the value of the euro lower.
Luke Bartholomew, investment manager at Aberdeen Asset Management, said: "ECB meetings are starting to have a Waiting for Godot feel: every month we think Draghi can't go any longer without doing something and every month we're left waiting."Luke Bartholomew, investment manager at Aberdeen Asset Management, said: "ECB meetings are starting to have a Waiting for Godot feel: every month we think Draghi can't go any longer without doing something and every month we're left waiting."
Earlier on Thursday, the Bank of England held UK interest rates at 0.5%.