ECB keeps key rate, raises forecast for eurozone

08:39, September 03, 2010      

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The European Central Bank (ECB) kept its key interest rate at a record low of 1 percent Thursday, and raised its eurozone gross domestic product (GDP) forecasts for the next two years.

The rate has remained unchanged for 17 months, since the world financial crisis broke.

The decision had been widely expected. According to a survey by Bloomberg, 57 economists expected the ECB would keep the rate unchanged.

The decision was made according to all the new information and analyses which had been collected by the Governing Council since last meeting on August 5, ECB president Jean-Claude Trichet told a press conference.

Trichet also said the eurozone's current performance was stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing.

Trichet also said the ECB would maintain its current accommodative monetary policies to foster sustainable economic growth, with the main measures expected to be kept "as as long as necessary, and at least until the end of this year's 12th maintenance period on 18 January 2011."

Although the economy was expected to cool both at the global level and in the euro area in the second half from the strong growth in the second quarter, the ECB still raised its forecast GDP growth for the eurozone to between 1.4 percent and 1.8 percent in 2010, and between 0.5 percent and 2.3 percent in 2011.

Turning to the fiscal consolidation policies adopted by many eurozone countries, Trichet said, "Current developments at the euro area aggregate level appear to be broadly in line with previous expectations."

He also asked those countries who needed to adopt austerity plans to implement them quickly to keep the credibility of those governments' fiscal target and to build confidence in the market.

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.



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