ECB Left Interest Rate Unchanged at 1.5% – October 6

Despite the high expectation that the European Central Bank will lower its basic interest rate, Jean-Claude Trichet, President of ECB, wasn’t pressured and decided to keep the interest rate unchanged at 1.5%; Jean-Claude Trichet, in his last ECB rate decision as ECB President addressed the ongoing risks in the Euro Zone and ECB’s LTROs. He also said he expects the inflation rate to remain above the 2% target of ECB in the months to come.

The heads of European Central Bank convened today and stated they will keep the Euro Area interest rate at its current level of 1.5%.

The flash report of the September inflation in the Euro Area slightly inclined to 3.0% in annual terms; this was probably one of the key factors to ward off Trichet from lowering the ECB basic interest rate. As stated earlier today by Trichet:

“Inflation has remained elevated and incoming information has confirmed our view that inflation is likely to stay above 2% over the months ahead but to decline thereafter”.

The ECB council has also decided to conduct two longer-term refinancing operations (LTROs), one with a maturity of approximately 12 months in October 2011 and the other with a maturity of approximately 13 months in December 2011.

The ECB President also addressed in the press conference the current debt crisis in Europe:

“The situation of the banking sector calls for particular attention, taking into account the interplay between sovereign risk issues and banks’ funding needs. As we have done on previous occasions, the Governing Council urges banks to do all that is necessary to reinforce their balance sheets, to retain earnings, to ensure moderation in remuneration, and to turn to the market to strengthen further their capital bases. Where necessary, they should take full advantage of government support measures, which should be made totally operational, including the possibility in future for the European Financial Stability Facility (EFSF) to lend to governments in order to recapitalise banks.”

 The chart below shows the changes in interest rate and EURO inflation rate in 2011 (UTD).

CPI EURO AREA 2008-2011 (Y-2-Y) & Basic Interest Rate of ECB October 6

This news didn’t seem to affect much the commodities and forex markets as gold and crude oil prices are currently traded slightly up.

Euros to USD is currently traded at 1.3386 a 0.2828% increase as of 15:22*.

 USD to Canadian dollar exchange rate is traded at 1.0430 a 0.2757% increase as of 15:23*.

Current gold price, short term futures (November 2011 delivery) is traded at $1,644.90 per t oz. a $3.3 increase or 0.20%, as of 15:16*.

Current Nymex crude oil price, short term futures (November 2011 delivery) is traded up by 0.82%, at $80.33 per barrel as of 15:18*.

 (* GMT)

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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.