News / Economy

    European Central Bank Commits to Record Low Rates

    The Euro sculpture at European Central Bank, Frankfurt, Germany, July 2012 file photo.
    The Euro sculpture at European Central Bank, Frankfurt, Germany, July 2012 file photo.
    Reuters
     
    The European Central Bank broke with precedent by declaring it would keep interest rates at record lows for an extended period and may yet cut further, responding to turbulence caused by the U.S. Federal Reserve's exit plan from money-printing.
     
    Less than two hours after the Bank of England gave a steer about future interest rate moves, ECB President Mario Draghi followed suit, abandoning the euro zone central bank's customary insistence that it never precommits on policy.
     
    Draghi said the decision to issue 'forward guidance' was driven by market volatility, which took hold after the Fed last month set out a plan to begin slowing its stimulus.
     
    "The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time," Draghi told a news conference after the ECB left interest rates at 0.5 percent, calling it a "very significant step."
     
    "Fifty basis points is not the lower bound," he said.
     
    Draghi did not say exactly how long ECB rates would stay at record lows. "It's not six months, it's not 12 months. It's an extended period of time."
     
    The council had discussed cutting rates but decided against, he said, and the bank could also consider cutting the deposit rate on bank deposits at the ECB — already at zero — in an attempt to foster more lending.
     
    Whether forward guidance about policy can mitigate the impact of the Fed's move on other countries remains to be seen.
     
    "President Draghi's guidance will protect the front end of the euro curve, say out to 2-3 year maturities, against rising rates in the U.S.," said Andrew Bosomworth, senior portfolio manager at Pimco, the world's largest bond fund.
     
    "But for maturities beyond the 'extended period of time' horizon, they will move in sync with Fed-induced swings in global rates."
     
    German Bund futures hit a day's high in response to the ECB's gambit and the euro fell, hitting a five-week low, down 0.7 percent on the day.
     
    Earlier, at former Canadian central bank chief Mark Carney's debut policy meeting as governor, the Bank of England said market pricing for future interest rate rises was "not warranted by the recent developments in the domestic economy."
     
    Draghi said it was a coincidence that the two central banks had gone down a similar path, adding: "We [the ECB] discussed several forms of forward guidance ... The Governing Council was unanimous on this formulation."
     
    Limited options
    The move also highlights the paucity of policy options open to the ECB at a time of renewed turmoil in the euro zone.
     
    The ECB met against a backdrop of political crisis in Portugal that pushed its benchmark bond yields above 8 percent on Wednesday, a spike that stirred angst in financial markets already jittery after the Fed's intervention.
     
    The tensions there, and in Greece, risk sapping confidence a year after Draghi imposed some calm by vowing to do "whatever it takes" to save the currency.
     
    Instability in Italy's ruling coalition and Greece's scramble to convince its lenders to dole out another tranche of aid have added to the sense of turmoil.
     
    But with the ECB's bond-buying program requiring a country to seek outside help from the euro rescue fund first and be issuing debt regularly on the bond market, none of the euro zone members in trouble qualify for that help, begging the question of what can the ECB do.
     
    Draghi said the ECB rules governing bond-buying intervention were unchanged, signaling Portugal would get no help to resolve a crisis that has seen its bond yields rocket this week.
     
    Concluding its review of the Italian economy, the International Monetary Fund urged more dramatic action from the ECB to help the euro zone, in the form of direct assets purchases and more long term cheap loans "of considerable tenor" to banks.
     
    Draghi stuck with the bank's forecast that the euro zone economy would improve in the second half of the year but said the risks to that were skewed to the downside.
     
    "We have actually penciled in a rate cut in September by the ECB and that ties in with the possibility that the Fed could start tapering [its stimulus] around September," said Howard Archer, economist at IHS Global Insight. "I suspect they may well have to put their money where their mouth is."

    You May Like

    Saudi Arabia’s New Female Politicians in the Other Room 

    Many in Saudi Arabia say elected representatives should share unsegregated spaces; according to a recent survey, more than half the Saudi population, both men and women, prefer to work in a segregated place

    Russia Not ‘Apologetic’ for Syria Airstrikes

    With Moscow criticized for targeting armed opponents of President Assad, Russia’s UN envoy says his country ‘acting in a very transparent manner’

    Pakistan Warns of Islamic State's Growing Reach

    Aftab Sultan, General Director General of Intelligence Bureau (IB), briefed Senate Committee in closed hearing, saying that IS-linked groups have been expanding in Pakistan

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Russia's Car Sales Shrink Overall, But Luxury and Economy Models See Growthi
    X
    February 10, 2016 5:54 AM
    Car sales in Russia dropped by more than a third in 2015 because of the country's economic woes. But, at the extreme ends of the car market, luxury vehicles and some economy brands are actually experiencing growth. VOA's Daniel Schearf reports from Moscow.
    Video

    Video Russia's Car Sales Shrink Overall, But Luxury and Economy Models See Growth

    Car sales in Russia dropped by more than a third in 2015 because of the country's economic woes. But, at the extreme ends of the car market, luxury vehicles and some economy brands are actually experiencing growth. VOA's Daniel Schearf reports from Moscow.
    Video

    Video Civil Rights Pioneer Remembers Struggle for Voting Rights

    February is Black History Month in the United States. The annual, month-long national observance pays tribute to important people and events that shaped the history of African Americans. VOA's Chris Simkins reports how one man fought against discrimination to help millions of blacks obtain the right to vote
    Video

    Video Jordanian Theater Group Stages Anti-Terrorism Message

    The lure of the self-styled “Islamic State” has many parents worried about their children who may be susceptible to the organization’s online propaganda. Dozens of Muslim communities in the Middle East are fighting back -- giving young adults alternatives to violence. One group in Jordan is using dramatic expression a send a family message. Mideast Broadcasting Network correspondent Haider Al Abdali shared this report with VOA. It’s narrated by Bronwyn Benito
    Video

    Video Migrant Crisis Fuels Debate Over Britain’s Future in EU

    The migrant crisis in Europe is fueling the debate in Britain ahead of a referendum on staying in the European Union that may be held this year. Prime Minister David Cameron warns that leaving the EU could lead to thousands more migrants arriving in the country. Meanwhile, tension is rising in Calais, France, where thousands of migrants are living in squalid camps. VOA's Henry Ridgwell reports.
    Video

    Video Valentine's Day Stinks for Lebanese Clowns

    This weekend, on Valentine's Day in Lebanon, love is not the only thing in the air. More than half a year after the country's trash crisis began, the stink of uncollected garbage remains on the streets. Step forward "Clown Me In," a group of clowns who use their skills for activism. Before the most romantic day of the year the clowns have released their unusual take on love in Lebanon -- in a bid to keep the pressure up and get the trash off the streets. John Owens reports from Beirut.
    Video

    Video Families Flee Aleppo for Kurdish Regions in Syria

    Not all who flee the fighting in Aleppo are trying to cross the border into Turkey. A VOA reporter caught up with several families heading for Kurdish-held areas of northern Syria.
    Video

    Video Rocky Year Ahead for Nigeria Amid Oil Price Crash

    The global fall in the price of oil has rattled the economies of many petroleum exporters, and Africa’s oil king Nigeria is no exception. As Chris Stein reports from Lagos, analysts are predicting a rough year ahead for the continent’s top producer of crude.
    Video

    Video 'No Means No' Program Targets Sexual Violence in Kenya

    The organizers of an initiative to reduce and stop rape in the informal settlements around Kenya's capital say their program is having marked success. Girls are taking self-defense classes while the boys are learning how to protect the girls and respect them. Lenny Ruvaga reports from Nairobi.
    Video

    Video Chocolate Lovers Get a Sweet History Lesson

    Observed in many countries around the world, Valentine’s Day is sometimes celebrated with chocolate festivals. But at a festival near Washington, the visitors experience a bit more than a sugar rush. They go on a sweet journey through history. VOA’s June Soh takes us to the festival.
    Video

    Video 'Smart' Bandages Could Heal Wounds More Quickly

    Simple bandages are usually seen as the first line of attack in healing small to moderate wounds and burns. But scientists say new synthetic materials with embedded microsensors could turn bandages into a much more valuable tool for emergency physicians. VOA’s George Putic reports.
    Video

    Video Researchers Use 3-D Printer to Produce Transplantable Body Parts

    Human organ transplants have become fairly common around the world in the past few decades. Researchers at various universities are coordinating their efforts to find solutions -- including teams at the University of Pennsylvania and Rice University in Houston that are experimenting with a 3-D printer -- to make blood vessels and other structures for implant. As VOA’s Greg Flakus reports from Houston, they are also using these artificial body parts to seek ways of defeating cancerous tumors.
    Video

    Video Helping the Blind 'See' Great Art

    There are 285 million blind and visually impaired people in the world who are unable to enjoy visual art at a museum. One New York photographer is trying to fix this situation by making tangible copies of the world’s masterpieces. VOA correspondent Victoria Kupchinetsky was there as visually impaired people got a feel for great art. Joy Wagner narrates her report.
    Video

    Video German Artists to Memorialize Refugees With Life Jacket Exhibit

    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video E-readers Help Ease Africa's Book Shortage

    Millions of people in Africa can't read, and there's a chronic shortage of books. A non-profit organization called Worldreader is trying to help change all that one e-reader at a time. VOA’s Deborah Block tells us about a girls' school in Nairobi, Kenya where Worldreader is making a difference.

    World Currencies

    EUR
    USD
    0.8883
    JPY
    USD
    114.96
    GBP
    USD
    0.6869
    CAD
    USD
    1.3858
    INR
    USD
    67.855

    Rates may not be current.