Despite a danger of deflation and complaints of tighter credit, the euro zone's main interest rate will probably stay at 1% when European Central Bank governors meet tomorrow in Luxembourg.
It is one of two ECB governing council meetings held outside the bank's Frankfurt headquarters each year, and policymakers will gauge the effects of last week's record loan operation before taking any more steps.
The ECB held its biggest single refinancing (refi) operation on June 24, lending €442 billion for a year at 1%. The bank is unlikely to quickly unveil more measures to boost the recession-hit euro zone economy.
The ECB will also buy €60 billion worth of low-risk corporate bonds to prime business finance markets and could press banks to increase lending as signs suggest activity could pick up later this year.
The latest economic data give the ECB reasons to loosen monetary policy further, however. Euro zone consumer prices fell in June for the first time on records that go back to 1996, a Eurostat agency estimate showed yesterday, raising the spectre of deflation gripping the economy.
The provisional inflation figure of -0.1% is far from the bank's target of just below 2%. A broad-based decline in prices can incite households and companies to postpone spending, throttling production and threatening jobs.
After hitting a record high of 4% in June and July 2008, euro zone inflation plunged to a record low as oil and other commodity prices collapsed in the face of a dire global economic downturn. Rising unemployment should keep labour costs stifled through next year.
