On Thursday 8th November 2012, the European Central Bank announced its decision not reduce its main base rate, thereby maintaining the status quo which should continue in the coming months.
Just one year after his nomination, Mario Draghi, President of the European Central Bank, celebrated this anniversary by maintaining the banks rate at its lowest level. Used as the basis for standard variable mortgage rates in France, the ECB base rate remained, for the fourth consecutive month, at 0.75%. This is good news for banks who can continue to refinance at a rate below the 1% and thus continue their aggressive mortgage offers. The average rates on offer currently stands at 3.37% for French residents according to the Observatory of Housing Credit (CSA).
In fact, many Banks would probably have welcomed a new decrease in ECB rate with more enthusiasm. However, if in theory a downward revision of interest rates by the ECB may seem beneficial for an economy in need of refinancing, it is actually not always the case. The decline of 25 basis points decided last July has had very little impact on the economic recovery. According to Dirk Schumacher of Goldman Sachs, “lowering rates in the current environment of high market segmentation may stimulate growth where it is least needed.” In other words, another decline in ECB rate would certainly miss its intended target by giving advantages to the countries whose economies are the strongest, instead of those experiencing serious difficulties.
By adopting a posture of waiting, the ECB is trying to give the Eurozone a break from change. The Financial markets have already been reassured by the ECB plan to buy sovereign debt. The monetary institution now expects that, “an economic recovery will probably be slow, gradual but solid”.