ECB meets as concerns about Greek debt grow

Feb 9, 2012, 4:01 GMT

Frankfurt - The European Central Bank (ECB) meets Thursday with the Greek debt crisis set to take centre stage at the ECB's deliberations.

The Frankfurt-based ECB's meeting is forecast to decide to keep interest rates steady for the second consecutive month at an historic low of 1 per cent as it waits to see how economic events unfold in the coming months.

As a result, the market focus will be on ECB President Mario Draghi's press conference set for later Thursday for signs as to what further steps the bank might take to underpin the eurozone banking system and to shore up the region's economy.

With this in mind, Draghi is likely to face questions at his press conference on what plans the ECB has for the estimated 40 billion euros of Greek government debt it holds. This includes whether it is prepared to accept a write down on the holdings.

The ECB chief is also expected to review the impact of the bank's move in December to pump a record 489 billion (640 billion dollar) liquidity in the eurozone's financial system, which was aimed at heading off the threat of a credit crunch in the 17-member currency bloc.

But market analysts are also likely to pay close attention to Draghi's comments for hints whether the ECB might consider launching another round of liquidity to help ease tensions in eurozone markets.

Since Draghi took over as chief in November, the ECB has delivered two 25 basis points rate cuts - one in November and th other in December. This brought the ECB's benchmark refinancing rate down to an historic low of 1 per cent.

Many analysts are expecting the ECB to trim rates again by the middle of the year as inflationary pressures across the eurozone ease and to help ensure that the currency bloc's economy remains on a growth path.