MercoPress. South Atlantic News Agency

Euro bank says no to “zero rates”; benchmark 2%

The European Central Bank kept interest rates on hold at 2% on Thursday but said it may resume cutting, although zero rates were not “appropriate” for the Euro zone at the moment.

ECB President Jean-Claude Trichet said he did not exclude lower borrowing costs rates at its next policy meeting in March, when it will have new data and staff forecasts on the troubled Euro zone economy. But overall "the level of uncertainty remains exceptionally high", he said. Thursday's rate freeze halted the most aggressive series of ECB cuts in history, four times since September when they stood at 4.25%. But contrary to its counterparts from the Federal Reserve, Bank of England, Bank of Japan, Switzerland, the BCE has bee more cautious in cutting rates. However, with the economy falling deeper into recession by the week and signs that inflation is heading to worryingly low levels, there could be a change of emphasis. "We confirm that 2 percent is not the lowest level" said Trichet during a news conference. "I don't exclude that we could decrease rates at our next meeting", but he insisted that "zero interest rates at this moment is not something we could consider appropriate". Trichet also said inflation risks are diminishing and should remain in line with the ECB's target. The Euro zone and its big trading partners were undergoing an extended period of significant economic downturn, he noted. Inflation in the 16-country bloc eased to 1.1% in January, the lowest in almost 10 years and well under the ECB's target of below, but close to 2%. Reflecting the impact of the intensified and broadened financial market turmoil, Trichet said that economic activity throughout the world, including in the Euro area, has weakened substantially with foreign demand for Euro area exports has declined, and domestic factors, notably very low confidence and tight financing conditions, have adversely affected domestic demand. "Taken together with other available economic data for the Euro area, this anticipates a very negative quarter-on-quarter real GDP growth in the last quarter of 2008", he said.