ECB keeps interest rate at 0.25%

The European Central Bank has kept its benchmark interest rate at 0.25 per cent.

The bank last cut rates to a record low in a surprise decision in November.

Inflation in the eurozone region slowed to 0.7 per cent in January from 0.8 per cent in December.

Despite fears of deflation in the eurozone, the bank believes the economies of the 18 countries in the zone are recovering after the bloc emerged from recession last summer.

Holger Schmieding, chief economist at Berenberg Bank, believes the ECB is right not to be concerned about deflation.

“This Anglo-Saxon hysteria about small falls in prices is absolute rubbish,” he said.

“It can be a problem if prices fall too much and people stop buying, but small falls are not a problem.”

On Wednesday, Markit’s Eurozone Composite Purchasing Managers’ Index indicated that growth in the private sector last month was its strongest for two and a half years.

The British Broadcasting Corporation reported that in addition to holding its benchmark rate at 0.25 per cent, the ECB also left unchanged the rate it pays on bank deposits at zero,

Schmieding also said, “Prices are stable. Leading economic indicators are close to trend.

“The European Commission’s Sentiment Index is at 100.9 which is actually a little bit above trend. So the recovery is happening. [ECB President] Draghi should have acted earlier, but belatedly, the recovery is on track.”