ECB rates to diverge from UK and US

Eurozone interest rates will diverge from those in the US and Britain for a number of years, according to European Central Bank (ECB) executive board member, Benoit Coeure.

Speaking after the ECB last week cut rates to record lows, Mr Coeure said they would remain around that level for a long time, whereas central banks in the US and Britain would, at some point, raise rates.

“Clearly, what we wanted to indicate on Thursday is the fact that monetary conditions will diverge between the eurozone, on one hand, and the United States and the United Kingdom on the other for a long period, which will be several years,” he said.

“We are going to keep rates close to zero for an extremely long period, whereas the United States and the United Kingdom will at some point return to a cycle of rate rises,” he added.

Mr Coeure said this should help to weaken the strong euro, which is threatening economic recovery and importing disinflation. French president Francois Hollande has been calling for months for ECB action to weaken the currency.

The ECB last Thursday lowered its main refinancing rate to 0.15% and launched measures to pump money into the sluggish economy, pledging to do more if needed to fight off the risk of Japan-like deflation.

The Bank of England last week left its benchmark interest rate at 0.5% — where it has sat since the worst of the financial crisis more than five years ago — despite a strong recovery and fast-rising house prices.

Forecasts from the bank — published in May — showed gradual interest rate rises starting in about a year’s time would be consistent with its 2% inflation target. Martin Weale, the Monetary Policy Committee member most likely to cast a first vote for a rate hike, said recently that borrowing costs should go up sooner rather than later.

The US Federal Reserve is not expected to raise rates until July 2015.