The European Central Bank kept is key interest rate at 1%, noting that economic activity over the remainder of this year is expected to decline "at much less negative rates." After a period of stabilization, "positive quarterly growth rates" are expected by mid-2010. The Bank of England kept its main lending rate at 0.50%.
The always-inflation-vigilant ECB did concede, however, that it sees higher unemployment in the coming months and inflation expectations are expected to remain firmly anchored (so why not cut again?). But the central bank still believes risk to the outlook are balanced.
Given the swift decline in eurozone economic activity, the central bank fell far behind the curve in an effort to fight inflation that no longer existed. The eurozone is the world’s second largest economy (Japan is number two when considering output on a nation-by-nation basis) and an improvement would bolster US exports.
Of course, it’s a two-way street, and a stronger US economy would also support Europe, especially Germany’s export-dependent economy.
Meanwhile, the 60 billion euro purchase program for covered bonds announced in May will begin in July, according to ECB President Jean-Claude Trichet, and will last until June 2010. The bank sure is taking its time.
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