The ECB Keeps Rate Unchanged. Spain Still Resists Financial Aid

“The European Central Bank kept interest rates on hold today as the economic outlook worsens and Spain resists asking for a bailout that would open the door to ECB bond purchases.

Policy makers meeting in Frankfurt left the benchmark rate at its historic low of 0.75 percent, as predicted by 62 of 63 economists in a Bloomberg News survey. One forecast a cut to 0.5 percent. ECB President Mario Draghi will brief reporters on the decision at 2:30 p.m.

Draghi yesterday fueled speculation that the ECB might put rate reductions back on the agenda, saying the debt crisis is starting to hurt Germany — the pillar of economic strength in the euro area — and inflation risks are “very low.” Still, Draghi has acknowledged in the past that rate moves are less effective than they should be because distorted financial markets are interrupting the transmission of ECB policy.

“In normal times, with the economic outlook in Europe, a rate cut would probably be justified,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “But we’re not in normal times and a rate cut won’t achieve anything.”

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