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ECB commits to record low rates

Thursday, July 04, 2013 - 02:07

July 4 - The European Central Bank left its key interest rate unchanged on hold at the record low of 0.5%, and in an historic move declared it would keep rates low for an extended period, and may yet cut further. As Joanna Partridge reports, the ECB's meeting came at a time of renewed turmoil in the euro zone.

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Political crisis in Portugal - and anger over austerity. Add tensions with the Troika in Greece - and the euro zone crisis is rearing its head once again. That presents more challenges for the European Central Bank, and its President Mario Draghi. The ECB kept interest rates at 0.5%. And Draghi said the bank had taken the historic step of adopting forward guidance on rates. SOUNDBITE: Mario Draghi, European Central Bank President, saying (English): "Key ECB interest rates to remain at present levels or lower for an extended period of time. It's the first time the Governing Council says so." Draghi was asked if Portugal might benefit from the ECB's bond-buying programme. The OMT is only activated when the country asks for outside help from the euro rescue fund. He said the bank's rules governing that hadn't changed, giving Lisbon little hope for help in resolving the crisis, which has seen its bond yields soar in recent days. SOUNDBITE: Mario Draghi, European Central Bank President, saying (English): "The results that have been achieved have been quite significant, remarkable, if not outstanding. I think we should give credit for this to the government and especially to minister Gaspar who has just resigned. We're also reassured by the way by the new minister, by everything we know about her, so from this point of view Portugal is in safe hands.' Draghi wouldn't be drawn on how long rates will stay low for. Christoph Rieger is from Commerzbank SOUNDBITE: Christoph Rieger, Head of Interest Rates Strategy, Commerzbank, saying (English): "It will all depend on the economic data, as stupid as that sounds, that's the way it is. If PMIs should continue to increase, which we don't expect as they have over the last months during the rest of this year, then again what the ECB says right now will not matter to yields as it does right now." Central banks around the world have been facing turbulent market conditions since the U.S. Federal Reserve set out a plan last month to exit its money-printing programme. The ECB is expecting a rocky ride for some time to come.