ECB holds rates at 1.5%

The European Central Bank left interest rates unchanged and may lower its inflation and growth forecasts as the region’s debt crisis worsens.

ECB officials meeting in Frankfurt today kept the benchmark rate at 1.5 percent.

The spreading debt crisis is sapping confidence in European banks and driving up market borrowing costs, prompting economists such as Nouriel Roubini and Nobel Prize winner Joseph Stiglitz to urge the ECB to quickly cut rates. Economists who closely watch the ECB say it is more likely to use other tools first, such as reintroducing 12-month loans to banks.

“It would take a full-blown recession for the ECB to really reverse course,” said Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London. “Having just raised interest rates it would be very, very embarrassing to say sorry, we apparently made a mistake. It is much more likely that they will offer even more liquidity assistance to banks to help ease tension in the inter-bank markets.”

The Bank of England today kept its key rate at a record low of 0.5 percent and maintained its bond-purchase program at 200 billion pounds ($320 billion).