ECB Keeps Rates on Hold

Central bank leaves policy unchanged despite pressure as debt crisis weighs on European economy.

The European Central Bank left interest rates on hold as the debt crisis tightens its grip on the euro-area economy, increasing pressure on policy makers to deliver further stimulus.

ECB officials meeting in Frankfurt today kept the benchmark interest rate at a record low of 1 percent, as predicted by 49 of 60 economists surveyed by Bloomberg News. Ten forecast a quarter-point reduction and one a half-point cut. With European governments struggling to fix a crisis that’s engulfing Spain and could force Greece out of the euro, economists say the ECB may soon be forced to lower rates and introduce more liquidity support for banks.

New Projections

The ECB in March predicted an economic contraction of 0.1 percent for 2012 and growth of 1.1 percent for 2013. Inflation was projected to average at 2.4 percent this year and 1.6 percent next. Economists said they expect modest downward revisions to both the inflation and growth outlooks today.

Pressure on Governments

“We certainly expect Mario Draghi to underscore that the ECB has not run out of options yet,” said Elwin de Groot, senior market economist at Rabobank Nederland in Utrecht. “However, letting go now would remove any pressures on European policy makers to come up with a set of structural solutions to this sovereign debt crisis.”

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