Central Banks try to control their economies through monetary policy, a key component of which is the base interest rate. The European Central Bank (ECB) has decided to leave interests rates unchanged at 0.5%, its lowest ever value and where it has been since May. It represents the interest that banks must pay to the ECB when borrowing money from it. In keeping with the trend for “future guidance”, ECB President, Mario Draghi, said that he expected the rate to remain unchanged for an “extended period”.
The ECB made no move to make further “ultra cheap” money available to Europe’s banks to boost liquidity and in turn make “cheap money” available from the banks to business through the provision of further long-term loans as some analysts had been expecting.
Mr Draghi characterised the Eurozone recovery as “weak, fragile and uneven”. He noted that the ECB was "ready to consider all available instruments" to foster Eurozone recovery and that bank lending to businesses remained weak in the current climate. The ECB believes that low interest rates are essential whilst Eurozone nations restructure their economies and try to get their debt problems under control.
Speaking of the current budget stalemate in the USA, Mr Draghi cautioned that a protracted shutdown would be likely to harm prospects for growth around the world. He remained upbeat that the USA would avert a partial default by resolving the dispute over the debt ceiling. If no agreement to raise the permitted level of US debt is achieved by 17th October, the USA risks being unable to meet its obligations. Republicans in the House of Representatives want concessions over the affordable care act as the price of an agreement, but President Obama has made it clear that he will not agree to what he sees as blackmail.