What's going on?

The European Central Bank (ECB) held one of its regular meetings on Thursday � but no changes were announced. Pressure is building on the ECB to follow the path of the US central bank and push interest rates up.

What does this mean?

The ECB has taken various extreme actions in recent years to force interest rates in the eurozone down to historically low levels. The idea has been that lower interest rates encourage people and companies to borrow, and thus spend, money � which provides a boost to the economy.


The economy now appears to be recovering relatively well: growth has picked up and unemployment is falling. In theory, this should cause the ECB to reverse some of its actions and allow interest rates to rise � which would then allow the ECB to force interest rates down in the future when the economy, once again, slows down. But on Thursday the ECB said, essentially, said that the recovery isn�t strong enough yet to do that.

Why should I care?

The bigger picture: The ECB�s actions are keeping the value of the euro down.

If the ECB took action that led to higher interest rates in Europe, the euro would likely go up in value as more international investors buy the euro in an attempt to earn those higher interest rates (click here for more background). As long as the ECB is unwilling to take action to increase interest rates, it will continue to keep downward pressure on the value of the euro.


For the markets: Investors can look to the US to see the impact of higher interest rates on markets.

The US Federal Reserve has already begun raising interest rates, which has helped push down the value of US government bonds. Bonds pay a fixed amount of interest and so, when interest rates go up, the existing bonds, which are stuck paying investors a lower interest rate, go down in price. In contrast, bank stocks have performed relatively well since banks are able to make more income by charging higher interest on the loans they make. There are, of course, also other impacts.