The ECB decided today , at its monthly policy meeting , to leave its main refinancing rate at 1.5% .
Despite moving back into crisis mode, Trichet signaled that euro zone official interest rates could rise further, in contrast to easing by the Swiss and Japanese central banks this week.
“We will continue to monitor very closely all developments with respect to upside risks to price stability,” Trichet said, deploying the same phrase he used after the bank raised interest rates last month.
Economists said before the news conference that use of the phrase would signal a further rate rise this year, although markets are not pricing in any further increases before 2012 as the euro zone debt crisis bites even more deeply.
Crisis : – The eurozone’s third largest economy, Italy, has suffered a huge setback as economists worldwide expect the nation to default unless there is huge upturn in growth.
Growth looks unlikely – since in the first quarter of 2011 its economy grew by just 0.1 percent and further growth is expected to be sluggish. Furthermore, the nation’s debt is expected to increase exponentially by 2012 if bond yields stay above 6 percent and growth remains stagnant; a likely scenario given the current economic situation.
In a press conference yesterday, Italian Prime Minister Silvio Berlusconi addressed parliament stating the economy was “strong” and that the nation’s banks were “solvent”. However, take from this what you will; it was clearly an attempt to restore confidence which has been severely battered over recent days. Whilst Spain is by no means a rock solid economy, it has been given a boost after economists revealed it is unlikely to default.
The Bank of England also left their interest rate unchanged at the low of 0.5% . It has been at the same rate for 29 months.