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ECB holds rates, rules out early exit from emergency measures

Apr 4, 2012, 15:16 GMT

Frankfurt - The European Central Bank held interest rates at record low of 1 per cent Wednesday and rejected calls to withdraw emergency monetary measures it launched to counter the fallout from the eurozone debt crisis.

ECB chief Mario Draghi told reporters after a meeting of the bank's 23-member governing council that it was 'premature' to discuss an exit strategy from the more than 1 trillion euros (1.31 trillion dollars) of cheap loans the bank has rolled out since December.

He was responding to calls from some senior ECB officials for the bank to unwind a programme of pumping low-interest loans into the 17-member eurozone's financial system to revive the economy.

In his comments, Draghi stressed the importance of the emergency measures in helping to avert a credit crunch but insisted they were only temporary. However, he added: 'We need to carefully monitor further developments.'

He also dismissed suggestions that renewed pressure on the bond markets in both Spain and Italy - which have been at the centre of the debt crisis - were a sign that the ECB's moves to inject funds into the currency bloc's financial system were losing their force.

Instead, the ECB chief stepped up the pressure on eurozone governments to forge ahead with measures aimed at cutting back high debt and deficit levels.

'Markets are asking for the governments to deliver,' said Draghi, who pointed to the need for eurozone governments to press on with fiscal consolidation and structural reforms. 'The work is not finished yet,' he said.

It was the fourth consecutive month that the ECB has left rates on hold. According to Draghi the governing council did not discuss interest rate changes at this week's meeting.

Indeed, analysts believe that the ECB is considering the impact of what Draghi described as the 'huge amount of central bank money', while attempting to balance stubbornly high inflation with a weak economic growth outlook.

Annual inflation in the eurozone edged down less than predicted to 2.6 per cent in March from 2.7 per cent in February, preliminary data released Friday showed.

Draghi told Wednesday's press conference, the ECB does not expect inflation to fall below the ECB's 2-per-cent ceiling before next year following a spike in energy costs and higher indirect taxes in parts of the eurozone.

At the same time, the ECB - along with most economic forecasters - expects the eurozone economy to mount a moderate recovery from a mild recession later this year.

However, underscoring the fragile state of the eurozone economy, Draghi warned: 'Downside risks to the economic outlook prevail.'

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