ECB, BOE Hold Rates

The European Central Bank [ECB] decided Thursday to hold its benchmark interest rate at 4.0%. The Bank of England [BOE] also kept its key interest rate unchanged, at 5.75%. Market participants are awaiting bank commentary, but the decisions to hold were widely expected, with the chief U.K. and EU economist at Global Insight saying a rate cut would have been premature. Bank of America's chief European economist commented, "The strong euro and the persistent dislocations in the money and credit markets will likely force the ECB to keep rates on hold for the foreseeable future. The markets have done the work of tightening euro-zone monetary conditions for the ECB." As for England, Charles Goodhart, a former BOE policy maker, told Bloomberg in an interview that "the one point nobody has taken into consideration is that the market has effectively tightened monetary policy on everybody by half a percent or more. If the bank were to lower interest rates by a quarter actually more people could take out mortgages and companies trying to raise funds would find that conditions in financial markets were still somewhat tighter than they were five or six weeks ago."

Sources: Associated Press, MarketWatch
Commentary: ECB, BoE and Fed Continue On Path of Monetary Inflation • BoJ, ECB Won't Raise Rates Anytime Soon - Seeking Alpha • BoE, ECB Intervene to Curb Turmoil, Leave Rates Unchanged
Stocks/ETFs to watch: EWU, EZU, VGK, FEZ, FXE, DBV

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