ECB officials to hold interest rates

ECB officials edged back from a threat to raise interest rates, saying markets have over-reacted to their change in tone on inflation.

“The Governing Council of the ECB sees presentinterest rates as adequate,” council member Ewald Nowotny said at an event in Budapest yesterday. “We do not see a need for an interest rate change in the foreseeable future.” Bundesbank president Axel Weber also said he expects inflation to remain below the ECB’s 2% limit in the medium term, softening his language on the risks to price stability.

“It looks like the ECB is now trying to fine-tune market expectations,” said Laurent Bilke, global head of inflation strategy at Nomura International in London, who used to work as a forecaster at the ECB. “The market didn’t get the ECB completely right, but at the same time policy-makers will not be successful in telling the market that there hasn’t been a shift in the policy stance.”