5 February 2009 - Monetary policy decisions

Bank of England cuts rates to record low of 1 percent, ECB leaves rates unchanged

European Central Bank -5 February 2009 - Monetary policy decisions
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 2.00%, 3.00% and 1.00% respectively.

Press Release - Introductory statement
Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB
Frankfurt am Main, 5 February 2009

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.

On the basis of its regular economic and monetary analyses, at today’s meeting the Governing Council decided to leave the key ECB interest rates unchanged. As anticipated in our interest rate decision of 15 January 2009, the latest economic data and survey information confirm that the euro area and its major trading partners are undergoing an extended period of significant economic downturn, and that accordingly both external and domestic inflationary pressures are diminishing. We continue to expect inflation rates in the euro area to be in line with price stability over the policy-relevant medium-term horizon, thereby supporting the purchasing power of euro area households. This assessment is supported by available indicators of inflation expectations for the medium term. It is also confirmed by the further deceleration in monetary and credit growth in the euro area. Fully in line with its primary objective, the Governing Council will continue to keep inflation expectations firmly anchored in accordance with its definition of price stability, that is inflation rates of below, but close to, 2% over the medium term. This supports sustainable growth and employment and contributes to financial stability. Overall, the level of uncertainty remains exceptionally high. Accordingly, we will continue to monitor very closely all developments over the period ahead.

Allow me to explain our assessment in greater detail, starting with the economic analysis. Reflecting the impact of the intensified and broadened financial market turmoil, economic activity throughout the world, including in the euro area, has weakened substantially. Foreign demand for euro area exports has declined, and domestic factors, notably very low confidence and tight financing conditions, have adversely affected domestic demand. Taken together with other available economic data for the euro area, this points to very negative quarter-on-quarter real GDP growth in the last quarter of 2008.

This information is in line with our current analysis and forward-looking assessment. We continue to see persistent weakness in economic activity in the euro area over the coming quarters, as the financial market tensions have a further impact on the global and domestic economy. At the same time, the very substantial fall in commodity prices seen since the middle of 2008 should support real disposable income, and thus consumption, in the period ahead. Most recently, there have been tentative signs of stabilisation in some survey data, albeit at historically low levels. These indications, however, require confirmation on a broader basis.

Read the whole statement at the ECB website