ECB keeps key rate at historical low with better economic expectations

09:16, December 03, 2010      

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The European Central Bank (ECB) on Thursday kept its key interest rate at the historically low level of 1.00 percent, and slightly lifted its economic expectations.

"Recent economic data are consistent with a positive underlying momentum of the recovery, while uncertainty is elevated," said Jean-Claude Trichet, president of the ECB, at a press conference while explaining the decision.

"Inflation expectations are firmly anchored in line with our aim of keeping inflation rates below, but close to, 2 percent over the medium term," he added.

The ECB will continue taking accommodative monetary policies, conducting its main refinancing operations (MROs) and the special- term refinancing operations "as long as necessary, and at least until April 12, 2011."

Next year, the ECB will allot the three-month longer-term refinancing operations (LTROs) on Jan. 26, Feb. 23 and March 30, respectively.

Trichet said all those non-standard measures to inject liquidity are "temporary" and "the stance, the provision of liquidity and the allotment modes will be adjusted as appropriate" in the future, as "the Governing Council will continue to monitor all developments over the period ahead very closely."

The ECB raised its expectations for the economy of the euro area slightly from its September forecast, as both exports and domestic demand contribute to the growth amid better world economy, liquidity and financial system.

Trichet said: "Annual real GDP growth will range between 1.6 percent and 1.8 percent in 2010, between 0.7 percent and 2.1 percent in 2011 and between 0.6 percent and 2.8 percent in 2012."

"The range for 2010 has narrowed somewhat and shifted towards the upper end of September's range," he noted.

Trichet also pointed out several risks in front of the euro area, and asked for quick, substantial and far-reaching structural reforms for some euro member states.

He said: "On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy."

"Further downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances," he added.

Trichet said some euro area countries' budgetary situations are better than expected, but some are still unsustainable and vulnerable to bad market reactions.

"In this environment, there is a clear need for the responsible authorities to strengthen confidence in sound public finances," he said. "All euro area countries should pursue ambitious and credible multi-year consolidation strategies and implement fully the planned corrective measures, focusing on the expenditure side. "

"Substantial and far-reaching structural reforms should be rapidly implemented to enhance the prospects for higher sustainable growth. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits," Trichet said.

Trichet also welcomed the recent agreement signed by the Irish government with the European Commission and the International Monetary Fund, which he said is helpful for "a sustainable stabilization of the Irish economy" and "restoring confidence and safeguarding financial stability in the euro area."

"The Governing Council welcomes the commitment of the Irish public authorities to take any further measures that may become appropriate to achieve the objectives of the program," Trichet said.

Besides the key interest rate, the interest rates on the marginal lending facility and the deposit facility were also kept unchanged at 1.75 percent and 0.25 percent respectively, according to the ECB's decision on Thursday.

Source: Xinhua

(Editor:张茜)

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