(RTTNews) - As expected, the European Central Bank, or ECB, left its key interest rate unchanged in February after reducing the rate four times since October 2008.

At its meeting held in Frankfurt, the Governing Council left its interest rate on the main refinancing operations at 2%, interest rates on the marginal lending facility at 3% and the deposit facility at 1%.

Today’s decision follows a 50 basis points cut in January, which took the rate to 2% from 2.5%. In January’s decision, the ECB had left its interest rate on the marginal lending facility unchanged at 3%, while the interest rate on the deposit facility was lowered to 1%.

ECB President Jean-Claude Trichet is expected to hold his regular post-decision press conference at 8.30am ET. In January, Trichet had said earlier that the February meeting is not an important rendezvous for policy making and the next major decision will come in March.

Economic as well as business sentiment deteriorated to a new low in January. Industrial confidence and consumer confidence also showed weakness. The business climate indicator signaled that annual industrial production growth would be clearly negative in January 2009.

On January 28, the International Monetary Fund lowered its GDP estimates for Eurozone. The economy of 16 nations that share euro is expected to contract 2% this year compared with 1% growth in 2008. The 2009 estimate was 1.5 percentage points lower than the November forecast.

The European Commission had said in its interim forecasts for 2009-2010 that economic recession in the Eurozone is expected to continue until the first half of 2009. The Commission said the Eurozone economy is expected to contract 1.9% in 2009, down from its autumn forecast of 0.1% growth.

It estimates that GDP probably fell 1.5% quarter-on-quarter in the final three months of 2008. Eurozone entered its first recession since the adoption of Euro in 1999, contracting 0.2% each, in the third and the second quarters of 2008.

The economy is expected to come back on the growth path in 2010 by growing 0.4%. That was down from the Commission’s autumn forecast of 0.9% growth. Germany is forecast to grow 0.7%, France by 0.4%, Italy by 0.3% and Finland by 1.2%. At the same time, Spain is expected to suffer another year of slowdown by contracting 0.2%.

Annual inflation is expected to be at 1% in 2009, down from 3.3% recorded in 2008. In the next year, inflation is forecast to increase to 1.8%. The severe economic downturn will have a profound impact on labor market developments. According to the interim forecast, the unemployment rate is expected to increase to 9.3% in 2009 from 7.5% in 2008. It is forecast to increase to 10.2% in 2010.

Eurozone inflation eased to 1.1% in January from 1.6% in December, taking it to the lowest level since the launch of euro ten years ago. Annual inflation stood below the central bank’s target rate of below, but close to 2% over the medium term. The number of unemployed increased 230,000 in December taking the jobless rate to 8%, up from 7.9% recorded in November.

Earlier in the day, the Bank of England lowered its bank rate by 50 basis points to 1%. Elsewhere, the Czech National Bank slashed its limit two-week repo rate to 1.75%.

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Posted in Categories: Economy, Eurozone, Forex, Releases, UK.

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