Will take steps to bring money market rates down, says ECB

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SummaryThe European Central Bank said on Thursday it was ready to cut interest rates or pump more money into the euro zone economy if necessary to bring money market rates down and help the euro zone’s economic recovery.

The European Central Bank said on Thursday it was ready to cut interest rates or pump more money into the euro zone economy if necessary to bring money market rates down and help the euro zone’s economic recovery.

The bank left its key interest rate unchanged at 0.5%, as expected by all 60 economists polled by Reuters.

But ECB chief Mario Draghi said the policymaking governing council did discuss a possible rate cut at its monthly meeting, partly due to concern about money market rates and the uncertain “very green” nature of the recovery. “If money market developments were to be judged unwarranted in their impact on our assessment of medium-term inflation, then such an instrument should be considered,” he told a news conference.

An ECB statement said the bank would remain “particularly attentive” to the implications of shrinking excess liquidity in the euro area on its monetary policy stance.

The ECB shaved its forecast for euro zone growth next year to 1% from 1.1% in the June staff projection and said the 17-nation currency area’s economy would contract by 0.4% this year, less than the 0.6% foreseen three months ago.

Draghi reaffirmed the central bank’s commitment to keep interest rates low for a prolonged period. Abandoning its tradition of never pre-committing on future moves, the ECB said in July it would keep its rates at current or lower levels for an “extended period” — its first use of forward guidance.

However, the move has failed to bring down market rates — a task made all the harder for Draghi by the fledgling recovery and a looming Federal Reserve meeting later this month, at which the US central bank could begin to unwind US stimulus.

Draghi said there had been a debate on a rate cut on Thursday, with some governors arguing that improving economic data made such a discussion unjustified while others said the recovery was too fragile to rule out such a move.

“Output is expected to recover at a slow pace, in particular owing to a gradual improvement in domestic demand supported by the accommodative monetary policy stance,” the ECB said.

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