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ECB holds rates steady and reduces bond purchases

In its monetary policy session on Thursday, the European Central Bank (ECB) left its benchmark interest rates unchanged and maintained the forward guidance on monetary stimulus for a second meeting in a row.

The ECB confirmed plans to end bond purchases at the end of this year and keep interest rates at record low levels at least through next summer. The bank also said it will halve bond purchases to €15 billion per month from October. With inflation rebounding and the eurozone economy stabilising, the ECB has been gradually tapering crisis-fighting measures for the last months.

In the meantime, the UK unemployment rate remained unchanged at its lowest level since 1975, data from the Office for National Statistics show.

In the three months to July, the unemployment rate stood at four per cent, according to a labour force survey. This was the lowest rate since February 1975. A tightening labour market prompted the Bank of England to increase interest rates last month to the highest level since 2009.

However, the central bank kept interest rates on hold in its most recent monetary policy meeting held last Thursday, as it highlighted greater financial market concerns about Brexit. With inflation still well above the bank’s two per cent target, strong growth could strengthen the hand of those on the monetary policy committee who are more likely to vote for rate hikes to curb inflation.

Finally in the US, according to the Federal Reserve’s latest Beige Book published last week, the overall economy expanded at a “moderate pace” but three of the 12 districts covered in the report – St Louis, Philadelphia and Kansas City – reported weaker growth in August. The Beige Book is a compilation of anecdotal evidence on economic conditions in the 12 Federal Reserve districts.

The Fed also said that the tight job market has led to labour shortages across the country. There were also “some signs of a deceleration” in prices of final goods and services.

This report was compiled by Bank of Valletta for general information purposes only.

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