The European Central Bank left its benchmark interest rate unchanged at a record low Thursday, judging that pressure on prices has not yet become acute enough to risk undercutting growth in the euro area’s weakest economies.
Inflation in the euro area hit an estimated 2.4% in January, above the E.C.B.’s official comfort zone of just below 2%. That has made analysts more alert to the possibility of a rate increase in coming months.
But, with the European debt crisis still weighing on confidence, and growth still slow in countries like Greece and Spain, most analysts expect the E.C.B. to wait several months -- at least -- before it tries to cool down the economy and head off inflation.
The bank’s benchmark rate has been at 1% for nearly two years.
Analysts and investors will be listening keenly for any change in tone by Jean-Claude Trichet, the president of the E.C.B., who will hold a press conference at 2:30 p.m. Frankurt time.
Recently members of the council have been expressing concern about inflation, which has been blamed largely on rising fuel and food prices. The United Nations Food and Agriculture Organization said Thursday that its global food price index rose 3.4% in January, to a seventh consecutive monthly record.
Analysts have read council members’ statements as an attempt to convince markets that the central bank remains loyal to its mandate to maintain price stability, rather than a signal of an imminent rate hike.
That assessment could change if Mr. Trichet uses language that markets interpret as a warning to expect a big policy move. For example, based on past history, a rate hike could be two months away if Mr. Trichet uses the phrases "strong vigilance" or "heightened alertness" to describe the bank’s stance toward inflation, analysts at Royal Bank of Scotland said in a note Thursday.
Analysts and investors will also be listening for any details about how the E.C.B. plans to wind down the special support it has been giving to euro-area banks and to the most indebted countries. The bank has been buying Greek, Irish and Portuguese bonds on open markets to prevent a selloff of their debt. It also has been providing unlimited loans at 1% interest to euro-area banks.
While Mr. Trichet insists that these so-called nonstandard measures are independent from monetary policy, analysts say would be difficult for the E.C.B. to raise rates while they are still in place.
Last week the E.C.B. did not buy any government bonds, possibly in an attempt to dial back its support for the highly indebted countries.
So-called core inflation, which strips out commodity prices, remains around 1% in the euro area. Still, there is a risk that oil prices could put pressure on wages and other goods, forcing the E.C.B. to act.
If prices for oil and other commodities continues to rise, there is a risk that inflation could hit 3% by fall, analysts at Credit Suisse warned in a note Wednesday.
