ECB Rates Unchanged -Weary of Italy

The European Central Bank left interest rates on hold as it gauges how big a threat Italy poses to the economic recovery.

Policy makers meeting in Frankfurt today kept the benchmark rate at a record low of 0.75 percent, as forecast by 56 of 61 economists in a Bloomberg News survey. President Mario Draghi holds a press conference at 2:30 p.m. to explain the decision.

Budget cuts and economic reforms were rejected by more than half of voters in an Italian election last month, undermining optimism that the euro area will shake off the sovereign debt crisis and gradually climb out of recession this year. With economists predicting the ECB will lower its growth and inflation forecasts today, investors are looking for signs from Draghi that the ECB will do more to foster a recovery.

“It’s up to governments to implement structural reforms and Draghi will make clear what the ECB can do compared to what governments can do,” said Marco Valli, chief Eurozone economist at UniCredit Global Research in Milan. “But if the Italian situation impacts monetary policy or poses a downside risk to inflation, they’ll have to act.”

Policy options available to the ECB include rate cuts, more long-term loans to banks, and measures to encourage bank lending to small and medium-sized companies that are struggling to gain access to credit, economists said.

Bloomberg

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