 |  | ECB policymakers maintain that an appropriate level of inflation will return once comparisons with a mid-2008 spike in oil prices have passed. -- PHOTO: AFP |
FRANKFURT - THE eurozone's benchmark interest rate will stay at its historic low of 1.0 per cent on Thursday as deflation fears subside and the 16-nation economy shows signs of a rebound, analysts say.
'While keeping rates on hold this week, the ECB (European Central Bank) can shift gears from crisis management to safeguarding the momentum' seen in France and Germany, ING senior economist Carsten Brzeski said.
Observers will focus on the latest forecasts for eurozone inflation and growth by bank staff that ECB president Jean-Claude Trichet is to present at a press conference following the rate decision in Frankfurt.
Analysts expect a bleak picture presented in June to be brighter even though rising unemployment and a potential credit squeeze could still choke off sustained economic growth.
Fears that deflation could grip the eurozone have begun to subside however since the European Union said consumer prices slipped by just 0.2 per cent in August, far less than the 0.7 per cent level in July.
ECB policymakers maintain that an appropriate level of inflation will return once comparisons with a mid-2008 spike in oil prices have passed.
Economic activity is also showing signs of life, and even though the eurozone recorded a second-quarter contraction of 0.1 per cent, it was a big improvement from a 2.5 per cent drop in the first three months of the year.
France and Germany, the two biggest eurozone economies, both posted growth in the second quarter, and ECB staff forecasts will probably be revised higher as a result.
In June they expected activity to contract by 4.6 per cent this year and to shrink by a further 0.3 per cent in 2010. -- AFP
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