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European Central Bank Holding Interest Rates Steady And Offering Additional Loans

by Jim ONeil on August 10, 2011

in uk banks

European Central Bank (ECB) President Jean-Claude Trichet recently announced something most UK residents know- that the region is experiencing “particularly high” economic uncertainty. Given this, the ECB will engage in another refinancing operation, he said.

The bank has also decided to keep the eurozone interest rate at 1.5 percent, as was predicted.

Mr. Trichet was rather cagey when asked if the ECB was purchasing government bonds to support countries that have high borrowing costs. He commented only that the process was transparent, ongoing, and the market would be aware of if and when bonds were purchased. According to some reports, the ECB was entering the market to purchase government debt.

In April, the ECB began increasing interest rates, raising them from one to 1.25 percent. Last month, the ECB increased interest rates from 1.25 to 1.5 percent in an attempt to stall the increase in prices within eurozone countries.

This seems to have worked, as eurozone inflation slowed from 2.7 to 2.5 percent between June and July. However, the ECB expects inflation to stay well above the targeted two percent.

High levels of inflation are partially due to higher prices for commodities and energy. Economic growth has recently slowed within the eurozone. According to Mr. Trichet, expansion should be moderate in the near future. The Bank of England is still undeterred, maintaining UK rates at the record low 0.5 percent, making it a good time to get loans bank offered.

Renewed concern regarding the eurozone debt crisis is also apparent. Some believe that Spain will be unable to repay its debts. The interest rate it is paying to raise £1.9 billion over three years recently jumped from four to 4.8 percent.

However, analysts believe this is a reasonable rate and noted the strong demand for the most recent bond issue.

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