Eurozone ‘holding steady’

Eurozone ‘holding steady’

Friday, May 09, 2008

The ECB has held interest rates for the eleventh month in a row…

Inflation has remained higher than 3% for the past six months - well above the ECB's desired target of 2% - which has made the ECB reluctant to slash rates like its counterparts in the US and the UK, which analysts say have been more severely affected by the global credit problems.

ECB president Jean-Claude Trichet explained: "Inflation rates have risen significantly since the autumn, owing mainly to increases in energy and food prices. As we have said on previous occasions, inflation rates are expected to remain high for a rather protracted period of time, before gradually declining again.

“Despite the fact that economic expansion will slow this year, the economic fundamentals of the euro area are sound. The uncertainty surrounding this outlook for economic growth remains high and downside risks prevail. In particular, risks relate to the potential for the financial market turbulence to have a more negative impact on the real economy than previously anticipated," he said.

Holger Schmieding, Chief European economist at the Bank of America, observed: "While the US economy has succumbed to stagnation and the UK economy is decelerating sharply, the eurozone has so far held up fairly well”.

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