ECB holds eurozone interest rates at 1%

Image caption,
Interest rates are at their lowest in the ECB's 10-year history

The European Central Bank (ECB) has held eurozone interest rates at a record low of 1% for the 10th month running, as expected.

ECB president Jean-Claude Trichet said growth would be "moderate and uneven".

It follows a meeting of EU finance ministers earlier this week to discuss cuts in budget deficits.

Mr Trichet welcomed the commitment by the finance ministers to take immediate action to address budget deficits, describing it as "essential".

The ECB's policy committee meeting was unusually attended by EU monetary affairs commissioner Olli Rehn, who also attended the eurozone finance ministers meeting.

Inflation 'moderate'

Most EU governments will introduce measures to cut budget deficits this year or in 2011.

Spending cuts and tax rises are expected to cool eurozone growth and inflation, meaning the ECB can keep interest rates low.

Mr Trichet said inflation should remain moderate, but identified possible rises in VAT rates and the rising price in euros of commodities as risks.

The ECB forecasts eurozone inflation of 1.4%-1.6% for 2010, a slight upward revision from its March forecast.

It also predicts growth of 0.7%-1.3% this year, also revised up.

Greek crisis

The ECB would continue to provide a three-month lending facility for banks until September, Mr Trichet said.

The longer-term loans were originally made available to banks during the 2008 global financial crisis, to ensure they did not run out of cash.

However, since the Greek sovereign crisis, the ECB has been postponing its plan to phase out the special facility this year.

The ECB president refused to provide more details on the central bank's new government bond-purchasing programme.

The ECB began buying up government bonds in response to the recent Greek financial crisis

The purchases mean that the central bank is now exposed to the risk of default on these bonds, including Greek bonds that have a "junk" credit rating.

However, Mr Trichet did welcome a new 750bn-euro "stability facility" that is being set up by eurozone governments.

The facility will provide emergency loans to eurozone members that suffer financial crises similar to Greece.

Earlier on Thursday, the Bank of England announced that it had kept UK interest rates on hold at 0.5%.

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