September 26, 2020

E.C.B. Keeps Interest Rates Unchanged in Hopes for Recovery

FRANKFURT — Defying some calls for bolder action, the European Central Bank left its benchmark interest rate unchanged on Thursday, even as it changed its economic forecast to a gloomier reading for the rest of the year.

The E.C.B. left its main rate at 0.5 percent, as expected. Despite ever more insistent calls from economists for more aggressive moves to stimulate lending in the euro zone, the E.C.B. may have decided it needed to assess the significance of a slight uptick in inflation as well as some evidence that consumers and business managers are becoming less pessimistic.

In a news conference after the announcement, Mario Draghi, the president of the E.C.B., cited “downside risks surrounding the economic outlook for the euro area.” Those, he said, include the possibility of weaker-than-expected domestic and global demand and slow or insufficient policy changes in euro zone countries.

He also said the central bank was lowering its 2013 economic forecast for the euro area, now expecting the region’s economy to shrink by 0.6 percent this year, worse than the 0.5 percent decline previously forecast. But the central bank expects growth in the euro zone of 1.1 percent next year — slightly higher than previous forecasts.

The E.C.B. had hinted in recent months the bank was considering additional unconventional measures to fix a credit crunch in southern Europe. That might even include the unprecedented step of obliging banks to pay to store their money at the central bank, rather than earning interest on it — resulting in a so-called negative deposit rate. The goal would be to force banks to put their money to work, by lending it. Mr. Draghi indicated that the central bank’s governing council, which met before he spoke, had considered that move but decided not to proceed with it.

Judging from recent speeches by E.C.B. policy makers, they are concentrating more on getting banks to deal with problem loans and other issues that may be interfering with their ability to lend.

Mr. Draghi called for euro zone policy makers to move forward with a uniform system for winding down failing banks in an orderly manner.

Marie Diron, an economist who advises the consulting firm Ernst Young, said that, while fixing weak banks was a worthy goal, it was unlikely to yield dividends for some time.

While “a cleanup of banks’ balance sheets is necessary to ensure sustained growth in the medium term, it would probably be negative for growth in the short term,” Ms. Diron wrote in an e-mail before the meeting Thursday. “It is not clear why the E.C.B. seem to have changed its focus since early May.”

Some recent economic indicators have kept alive hope that the euro zone is close to hitting bottom. Surveys have shown that businesses and consumers are a little less pessimistic than they were. And inflation has accelerated slightly, although it is still below the E.C.B. target of about 2 percent.

Many economists have urged the E.C.B. to be bolder, as unemployment remains a persistent problem, with joblessness in the euro zone at a record high of 12.2 percent. France on Thursday reported a 10.8 percent unemployment rate for the first quarter, also a record high

James Bullard, president of the Federal Reserve Bank of St. Louis, said in Frankfurt last month that the E.C.B. should consider so-called quantitative easing similar to that undertaken by the Fed — large bond purchases meant to drive down market interest rates.

It is very unusual for central bankers to put pressure on their peers so publicly. But Mr. Bullard warned that Europe was acting as a dead weight on the global economy.

“You have to be concerned,” he told an audience in Frankfurt. “The European Union as a whole is the biggest economy in the world.”

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