Published: November 5, 2009
FRANKFURT – The European Central Bank and the Bank of England kept interest rates at record lows Thursday as their economies struggle to emerge from recession.
The British central bank decided to add an extra boost by adding 25 billion pounds ($41 billiom) to the supply of money, following disappointing growth data last week that showed Britain unexpectedly shrank in the third quarter.
The ECB's president, Jean-Claude Trichet, was giving his reasons at a press conference at the bank's headquarters in Frankfurt. Markets were looking for clues on when the bank might trim back some of its lending efforts that have been giving commercial banks more ready cash during the financial crisis.
The European moves come a day after the U.S. Federal Reserve also left rates at a record low of 0-0.25 percent and said it would keep them there for "an extended period" even as growth picks up after a deep recession. The world's central banks have slashed interest rates and pumped extra money into their economies and banking systemes since the crisis began to bit in late 2007.
Attention is increasingly turning to how long those measures — which carry a long-term risk of inflation — must be maintained and when the central bankers think the economy will be strong eough to withdraw all or some.
In Britain's case, the Bank England decided things are still looking bad enough to expand its bond purchase program, called quantitative easing, by 25 billion pounds to 200 billion pounds from 175 billion pounds. It was less than the 50 billion pounds some analysts expected.
The purchases over the next three months are financed by the issuance of central bank reserves, creating new money and putting in the hands of the banks. The idea is to encourage bank lending to businesses so the economy can get moving again.
The Bank of England's move came after last week's surprise news that Britain remained in recession during the third quarter, even as the United States turned to growth. Most economists expect the eurozone to show growth when third quarter figures come out next week.
Nonetheless, the Bank of England said a number of indicators of spending and confidence were up, suggested that "a pickup in economic activity may soon be evident."
Economists had widely predicted that both banks would leave rates steady.
"The November ECB monetary policy meeting should culminate in the widely expected decision of keeping the main refinancing rate at 1 percent," Ideaglobal analysts said in a Thursday research note.
"No changes in terms of the nonstandard monetary policy operations are on the cards." Nonstandard measures are the ECB's version of quantitative easing.
Meanwhile, Iceland's central bank lowered its official interest rate by a full point to 11 percent as the country tries to get back on its feet after the credit crisis toppled its overweight banking system last year. It had been at 12 percent since June.
News Categorization:
Business 
