Interest Rate Day – Bank of England, ECB, Bank of Canada hold rates steady.

By CountingPips.com

Today’s economic news centered around a very busy day for interest rate decisions by a few of the major central banks. The Bank of England, European Central Bank and the Bank of Canada all decided to keep their respective interest rates at present levels.

The Bank of England announced the decision to hold its interest rate at its lowest standing in the bank’s history at 0.50 percent as widely expected. The BOE had last reduced its interest rate by 50 basis points on March 5th and also cut its rate by the same amount in each of January and February. The short bank statement said today that its members “voted to continue with its programme of asset purchases totalling £125 billion” that was announced on March 5th.

The European Central Bank held its interest rate today at its lowest standing in the banks history after a rate reduction last month.  The ECB reduced its interest rate by 25 basis points on May 7th to its current level of 1.00 percent. The ECB also had reduced the rate in April by 25 basis points and by 50 basis points in March.

Jean-Claude Trichet, the President of the ECB, commented on the economy in his press conference today saying that, “Reflecting the impact of the financial market turmoil, and in particular a sharp fall in global demand and trade, economic activity weakened considerably in the first quarter of 2009. According to Eurostat’s first estimate, economic activity in the euro area contracted by 2.5% quarter on quarter, after a decline of 1.8% in the fourth quarter of 2008. This will have a significant negative impact on the average growth rate for 2009. However, more recently, there have been improvements in survey data, albeit at very low levels.”

Trichet said the ECB had revised downwards its growth projections for the eurozone and that, “annual real GDP growth will range between -5.1% and -4.1% in 2009 and between -1.0% and 0.4% in 2010.” Trichet also said that the  decision announced last month for the ECB to buy euro-denominated covered bonds was going forward in July with the bank purchasing 60 billion euros worth of bonds.

The Bank of Canada held its interest rate at 0.25 percent today and said again that it may hold the rate there for over a year. Today’s rate hold was expected by market forecasts and follows a rate reduction of 25 basis points on April 21st.  The BOC has lowered the interest rate by 425 basis points since December 2007 to its present record low level.  The BOC said that the interest rate will likely stay at 0.25 percent until the end of the second quarter of 2010 depending on the outlook for inflation as the BOC targets 2 percent inflation.

The BOC statement commented on the Canadian economic situation and its currency saying, “In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency) proves persistent, it could fully offset these positive factors.”

The next BOC rate decision is scheduled for July 21st.