Officials at the European Central Bank announced Thursday that it would keep the leading interest rate for the Eurozone at 1 percent, a move that market watchers expected.
The rate is the lowest in the history of the euro’s single currency and has remained at 1 percent for over a year following large cuts in interest rates meant to avoid some of the worst possible fallouts of the world financial crisis.
Financial bailouts of Ireland and Greece in 2010 meant the year was a shaky one for the Eurozone economies.
The region has stabilized in recent months, and the addition of Estonia to the zone has increased the reach of the currency to 331 million people in 17 countries.
In January, the Bank of England also decided to keep its interest rate at 0.5 percent, even though some economists believed an increase would help slow inflation.
Since then, a surprisingly grim quarterly economic report that showed the British economy shrunk 0.5 percent made it less likely that officials would call for any immediate rate increase.
“What counts is not inflation in the near term, but inflation in the medium term,” said ECB President Jean-Claude Trichet during a press conference.
The announcement meant the bank was not backpedaling after the lower than expected January report, but Trichet also did not change bank’s stance, said Carsten Brzeski, a senior Eurozone economist in Brussels with ING Bank.
“It has been sufficient to increase the threat and awareness that the episode of very low interest rates could come to an end this year,” Brzeski said. “However, in our view, a first rate hike is not imminent.”
Eurozone inflation is climbing at a steady pace and is the highest since 2008. Data indicates consumer prices rose 2.4 percent in January compared to January 2010, just at the ECB’s expectations of 2 percent.
The regional benchmark, Stoxx Europe 600 Index is up about 23 percent since its lows hit May 2010 under confidence by political leaders and governments from policies implemented to support the currency. European banks will reap the benefits of low interest rates since the region’s debt crisis has eased and remains relatively cheap.