ECB rate to stay at 1.0 percent

The European Central Bank was set Thursday to leave its main interest rate steady at a record low of 1.0 percent, analysts say, despite tighter credit and concern the eurozone could be hit by deflation.

A poll of 46 economists by Dow Jones Newswires found all expected the ECB to leave its benchmark lending rate unchanged as policymakers take a summer break. Comments by members of the bank's governing council in the past month "suggest a status quo on rates," Natixis economist Cedric Thellier said.

In London, the Bank of England was also tipped to leave its main rate at 0.50 percent, with experts unsure if it would extend exceptional credit-easing plans. Economic activity has shown signs of picking up in the 16-nation eurozone and surveys of businesses and consumers also suggest its first recession is finally winding down.

But bank lending conditions have become more restrictive and consumer prices have fallen in June and July for the first time in the bloc as a whole.

ECB president Jean-Claude Trichet was nonetheless only expected to keep possible further interest rate cuts in reserve while the bank waited to see if unorthodox measures taken so far help ease the economic slump.

"The ECB will fall behind the curve by maintaining that floor (of 1.0 percent) from now on," Thellier said. The US Federal Reserve and Bank of Japan have lowered their main interest rates to virtually zero and have implemented special programs to pump hundreds of billions of dollars and yen into the financial system.

ECB governors have also supplied unlimited amounts of cash to the eurozone banking system and have pledged to buy 60 billion euros worth of low-risk corporate bonds to unblock a crucial business credit market.

But its latest survey of commercial banks found many would still tighten credit conditions owing to concerns over poor business prospects and to bolster bank balance sheets as they look to emerge from a dogged financial crisis. FRANKFURT, (AFP)