ECB holds rates, sees gradual recovery this year

Thu Jun 6, 2013 10:54am EDT
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By Sakari Suoninen

FRANKFURT (Reuters) - The European Central Bank kept its main interest rate on hold at a record low 0.5 percent on Thursday, saying that improved economic data in May confirmed its forecast of a gradual recovery from prolonged recession later this year.

ECB President Mario Draghi told a news conference the bank's easy monetary policy "should continue to support prospects for an economic recovery later in the year" and it would remain "accommodative" for as long as necessary.

He also said the bank was still looking at ways to boost lending to small and medium-sized enterprises (SMEs) and revitalizing the market for asset-backed securities but any action was "not for the short-term".

The ECB slightly lowered its economic outlook for the euro area this year, saying output would decline by 0.6 percent in 2013 but grow by 1.1 percent next year. ECB staff forecast inflation of 1.4 percent this year and 1.3 percent in 2014 -- below the bank's target of below but close to 2.0 percent.

Draghi said the rate-setting governing council discussed at its monthly meeting the possibility of cutting the rate at which banks deposit money with the central bank to below zero.

The ECB was technically ready to do so but would keep this and other unconventional options "on the shelf" for now, he said.

Asked if the decision was unanimous, Draghi said there was a consensus that "there wasn't any direction change that would grant immediate action". In the past, he has used the term consensus to signal a large majority rather than unanimity.

"This can be seen as a reaction to the slight improvement in the purchasing managers indices (PMIs), which seem to signal that the worst is over in the euro zone," said David Kohl, chief economist for Germany at Julius Baer.   Continued...

The headquarters of the European Central Bank (ECB) are pictured in Frankfurt June 6, 2013. The European Central Bank held its main interest rate at a record low of 0.50 percent on Thursday. REUTERS/Ralph Orlowski