The decision to leave the main ECB rate unchanged comes shortly after the fourth consecutive cut since October 2008, when the main eurozone interest rate stood at 3.75%.
However, ECB President Jean-Claude Trichet did not rule out taking further steps in the near future. Speaking at a press conference in Frankfurt on 5 February, he said "2% is not the lowest level possible […] I do not exclude that we could decrease rates in our next meeting".
While hinting at new cuts in future, Trichet renewed his opposition to what he defines a "liquidity trap", in other words a fall of interest rates to the level of 0%, as seen in Japan. "0% is not something we consider as appropriate at this stage," said the ECB president.
He also stressed that there was no risk of deflation on the horizon. "Inflation expectations remain anchored to our definition of below, but close, to 2%." Eurozone inflation stood at 1.1% in January, according to the latest Eurostat estimate.
Regardless of the ECB's decision, the euro yesterday lost value against sterling as the Bank of England decided to further cut its main interest rate by 50 basis points to 1%, a new low that follows a series of other bold cuts.
The currency movements reflect the difficult conditions faced by the eurozone economy. Banks are tightening their lending activities, regardless of the loosening of monetary conditions. Trichet renewed his call for financial institutions to lend to firms and households.
Meanwhile, EU member states are increasingly exploiting the extraordinary measures allowed by the European Commission to help the real economy recover. Yesterday, Brussels approved three stimulus plans presented by the UK, France and Germany, the last in a long series.
The UK followed Germany, France and Portugal in adopting a scheme meant to guarantee grants of up to €500,000 for every company affected by the crisis so far, as well as those filing for help in 2009 and 2010.
France was allowed to provide aid to troubled firms in the form of reduced interest rates on loans of any duration concluded by the end of 2010. This is the third measure endorsed by Paris to facilitate access to credit, among four aid schemes defined by the Commission under the new anti-crisis temporary framework.
Germany was given the green light for a financial regulation aimed at temporarily facilitating access to risk capital for SMEs.
