ECB, BoE leave interest rates unchanged

[October 08, 2009]  FRANKFURT (AP) -- The European Central Bank and the Bank of England both left their key interest rates unchanged Thursday at record lows.

The ECB left its main refinancing rate at 1 percent while the Bank of England left its rate at 0.5 percent.

Analysts had expected both banks to hold steady, and observers will be watching for comments from ECB President Jean-Claude Trichet later to hear his outlook on the economy and the bank's efforts to promote increased bank lending and financial stability.

Trichet will has said that governments need to have exit strategies from the large economic stimulus packages of recent months at the ready -- but has also stressed the severity of the economy downturn.

The ECB, which sets monetary policy for the 16-countries that share the euro currency -- a bloc of some 320 million people -- is holding its meeting in Venice, Italy, part of a twice-yearly program to visit other euro-zone countries.

In London, in addition to keeping its main interest rate unchanged at 0.5 percent, the Bank of England also held off from any further moves to expand the money supply -- for now.

Both those decisions were widely expected but the Bank of England said it would keep its asset purchase program -- known as quantitative easing -- "under review."

At present, the BoE can buy up to 175 billion pounds ($281 billion) of financial assets, such as government bonds, from the banks. The aim of the policy is to increase the money supply in the hope that eventually the banks will start lending more to the private sector.

"The committee expects the announced program to take another month to complete. The scale of the program will be kept under review," the BoE said.

The BoE will have to decide whether a recovery is indeed under way, thus requiring no expansion of quantitative easing, or whether more stimulus is needed.

The banks' decisions come days after disappointing industrial production data for August fueled fears that the British economy won't return to growth in the third quarter.

Following the industrial data, the National Institute for Economic and Social Research, a leading independent forecaster, estimated that the British economy didn't grow in the third quarter.

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On the Net:

http://www.ecb.int/

http://www.bankofengland.co.uk/

[Associated Press; By GEORGE FREY and BOB BARR]

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