“FRANKFURT—The European Central Bank held interest rates steady Thursday despite extremely low inflation rates, resisting calls to cut its key rate closer to zero to guard against the risk of falling prices.
The euro climbed in response, nearing a 2½-year high against the dollar. The common currency was up 0.3% on the day at $1.3960, a whisker away from its high for the year.
The ECB decided to keep its main rate at 0.25%, a record low, where it has been since November, as expected by the vast majority of economists polled by Dow Jones Newswires before the meeting.
Annual inflation was just 0.7% in April, up slightly from March but still far below the ECB’s target of just below 2% over the medium term.
Yet the bloc’s economy has yet to show ill effects from too-low inflation, which may weigh on spending and makes it harder for the private and public sectors to service debt. Retail sales advanced in each month of the first quarter and business surveys point to annualized growth rates of around 2% in the early months of the year. For now, households and businesses appear to be reaping the positive effects of low inflation, which also gives them extra disposable income.
“The data suggest no need for the ECB to act now,” said Berenberg Bank Chief Economist Holger Schmieding in a research note Wednesday.
ECB President Mario Draghi will explain the decision at a news conference in Brussels due to start at 2:30 p.m. local time. The ECB typically holds two meetings a year away from its Frankfurt headquarters.
ECB officials have repeatedly said they see no evidence of persistent drops in consumer prices, known as deflation, which Japan has grappled with for two decades.
Economists are looking at the ECB’s next meeting on June 5 as the time when officials will be more likely to consider further action…..”
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