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| European Central Bank Leaves Benchmark Rate Unchanged | European Central Bank Leaves Benchmark Rate Unchanged |
| (35 minutes later) | |
| FRANKFURT — The European Central Bank left its benchmark interest rate unchanged on Thursday, once again defying criticism that it is doing too little to counteract very low inflation that some economists see as a grave threat to the euro zone economy. | FRANKFURT — The European Central Bank left its benchmark interest rate unchanged on Thursday, once again defying criticism that it is doing too little to counteract very low inflation that some economists see as a grave threat to the euro zone economy. |
| The central bankers, meeting in Brussels, left the main rate at 0.25 percent, a record low. While many economists have called for more decisive action to stimulate the euro zone economy, members of the bank’s governing council appear reluctant to deploy the more radical measures that would be required to do so. | The central bankers, meeting in Brussels, left the main rate at 0.25 percent, a record low. While many economists have called for more decisive action to stimulate the euro zone economy, members of the bank’s governing council appear reluctant to deploy the more radical measures that would be required to do so. |
| The bank’s president, Mario Draghi, said at a news conference that the E.C.B. continued to monitor the economy and the inflation rate. He indicated that the central bank was ready to take action at its next meeting, in June, although members of the governing council would first want to see the latest economic projections by the central bank’s staff. | |
| “There is consensus about being dissatisfied with the projected path of inflation,” Mr. Draghi said. “There is a consensus about not being resigned and accepting this as a fact of nature.” | |
| But he declined to offer specifics about the possible next steps. And at least on Thursday, conditions apparently did not impress the governing council enough to act yet. | |
| Mr. Draghi also said the E.C.B. was concerned about geopolitical tensions, apparently a reference to the Ukraine. | |
| Annual inflation in the euro zone was 0.7 percent in April, according to an official estimate, which is well below the central bank’s target of close to 2 percent. Such low inflation is risky, some economists say, because it leaves the euro zone vulnerable to a ruinous downward price spiral known as deflation that might be set in motion by some sort of shock, like a worsening of tensions in Ukraine. | Annual inflation in the euro zone was 0.7 percent in April, according to an official estimate, which is well below the central bank’s target of close to 2 percent. Such low inflation is risky, some economists say, because it leaves the euro zone vulnerable to a ruinous downward price spiral known as deflation that might be set in motion by some sort of shock, like a worsening of tensions in Ukraine. |
| Modest inflation is considered healthy, in part because it eases the burden on debtors in a region where many countries, companies and individuals are having problems repaying their loans. | Modest inflation is considered healthy, in part because it eases the burden on debtors in a region where many countries, companies and individuals are having problems repaying their loans. |
| The problem facing the central bank is that, while it is standard practice to keep a lid on excess inflation by raising rates, inducing an increase in inflation is much more difficult. It might require the bank to use measures that have never been tested in the euro zone, such as huge purchases of government bonds or other assets to pump money into the economy. | The problem facing the central bank is that, while it is standard practice to keep a lid on excess inflation by raising rates, inducing an increase in inflation is much more difficult. It might require the bank to use measures that have never been tested in the euro zone, such as huge purchases of government bonds or other assets to pump money into the economy. |
| Mr. Draghi, the E.C.B. president, said in April that the bank was prepared to make asset purchases, a strategy similar to the quantitative easing, or Q.E., used in the United States by the Federal Reserve. But most analysts did not expect the E.C.B. to take action yet — and the bank did not on Thursday. | Mr. Draghi, the E.C.B. president, said in April that the bank was prepared to make asset purchases, a strategy similar to the quantitative easing, or Q.E., used in the United States by the Federal Reserve. But most analysts did not expect the E.C.B. to take action yet — and the bank did not on Thursday. |
| “The E.C.B. embarking on Q.E. would mark a game changer,” analysts at Morgan Stanley said in a note to clients this week. But they added that they did not expect the central bank to do so at the moment. “Only in our bear-case, which sees the euro area sliding back into recession and inflation dwindling into deflation territory, would we expect such a move.” | “The E.C.B. embarking on Q.E. would mark a game changer,” analysts at Morgan Stanley said in a note to clients this week. But they added that they did not expect the central bank to do so at the moment. “Only in our bear-case, which sees the euro area sliding back into recession and inflation dwindling into deflation territory, would we expect such a move.” |
| For now, the central bank appears to be hoping that inflation will rise as the euro zone economy picks up speed. Countries including Spain, Portugal and Ireland show clear signs that they are emerging from the crisis. But unemployment remains high and credit remains tight for businesses in those and other countries like Greece and Italy. | For now, the central bank appears to be hoping that inflation will rise as the euro zone economy picks up speed. Countries including Spain, Portugal and Ireland show clear signs that they are emerging from the crisis. But unemployment remains high and credit remains tight for businesses in those and other countries like Greece and Italy. |
| Analysts at Nomura forecast that the central bank will take action in June by cutting interest rates to 0.15 percent rather than by initiating an asset purchase program. | Analysts at Nomura forecast that the central bank will take action in June by cutting interest rates to 0.15 percent rather than by initiating an asset purchase program. |
| Some analysts say that the central bank faces too many constraints to be able to deploy quantitative easing. There is no Pan-European debt instrument similar to the Treasuries that the Fed purchased as part of its program, for example. There are also legal restraints on the European Central Bank that do not bind the Fed. | Some analysts say that the central bank faces too many constraints to be able to deploy quantitative easing. There is no Pan-European debt instrument similar to the Treasuries that the Fed purchased as part of its program, for example. There are also legal restraints on the European Central Bank that do not bind the Fed. |
| “If the E.C.B. could have bought bonds in a traditional Q.E. operation,” Carl B. Weinberg, the chief economist at High Frequency Economics in Valhalla, N.Y., said in a note, “it would have done so already.” | “If the E.C.B. could have bought bonds in a traditional Q.E. operation,” Carl B. Weinberg, the chief economist at High Frequency Economics in Valhalla, N.Y., said in a note, “it would have done so already.” |