ECB Keeping Rates Near Record Lows

The European Central Bank decided on Thursday to leave its benchmark interest rate unchanged, keeping the rate at a record low level.

The ECB maintains a sharp focus on inflation, with an official comfort zone of just under 2 percent. Inflation on the Euro reached 2.4 percent in February, up from 2.3 percent in January.

Analyst Jens Sondergaard of Nomura remarked that "the inflationary risks are currently crystallizing. Because of higher oil prices and the pick-up in household inflation expectations, the ECB will, in our view, maintain its hawkish rhetoric."

Several members from the ECB Governing Council have publicly spoken that the bank may act quickly and decisively if indications arise that high inflation expectations lead to increases in wages.

In a Reuters poll, all 82 economists surveyed predicted that the ECB would leave rates at 1 percent for the 22nd meeting occurring this month. Reuters reports that an interest rate rise is likely later this year.

Economic growth in Europe has been slower than expected, as confirmed by Eurostat. Germany, France, and Italy all expanded more slowly than expected, and euro zone GDP grew just 0.3 percent in the fourth quarter as compared to the third quarter. Greece and Portugal's economies are contracting.

The ECB may tweak temporary measures to deliver liquidity to struggling banks. ECB President Jean-Claude Trichet has called for European leaders to give the European Financial Stability Facility rescue fund maximum flexibility and scope, published Reuters.