ECB keeps interest rates unchanged

Interest rates in Malta should remain stable for the coming month after the European Central Bank (ECB) yesterday decided to keep the base rate unchanged at four per cent.

ECB president Jean-Claude Trichet said none of the eurozone governors called for a rate hike or a rate cut. "The ECB's decision to keep rates unchanged was therefore unanimous," he told a press conference in Frankfurt.

The Central Bank of Malta was represented by Governor Michael Bonello.

The decision was expected by economists who doubted the ECB would be swayed despite sharp reductions by the US Federal Reserve, which slashed its key rate from 4.25 per cent to three per cent in just eight days last month.

The ECB's decision to keep the status quo also comes amid a 14-year high inflation in the eurozone, hitting 3.2 per cent in January, far above the Bank's target of just below two per cent.

At the same time, Mr Trichet lowered the economic expectations of the euro area for this year saying the latest economic data at the end of the year pointed to a more moderate pace of growth than in the third quarter of last year.

"The slowdown in the economies of some of the euro area major trading partners is likely to have an impact on euro area real GDP growth in 2008. Both domestic and foreign demands are expected to support ongoing growth," he said.

Mr Trichet confirmed that the fundamentals of the euro area economy remain sound and the euro area does not have major imbalances.

According to Mr Trichet, the governing council's decision to leave key rates unchanged "reflects our assessment that risks to price stability over the medium term are on the upside within the context of very vigorous money and credit growth.

"A firm anchoring of inflationary expectations over the medium and long term is of the highest priority."

He reiterated that the ECB "remains committed to prevent second-round effects" on inflation, adding that the annual HICP inflation rate will most likely remain significantly above two per cent in the coming months before moderating only gradually for the rest of 2008.