The European Central Bank held interest rates steady after two straight cuts as signs of respite from the sovereign debt crisis gave it scope to pause.
ECB policy makers meeting in Frankfurt kept the benchmark interest rate at a record low of 1 per cent, as had been widely expected. However, cuts may follow in forthcoming months if looming budget cuts and a credit shortage prove too powerful for the economy to withstand.
Speaking after the rates announcement in Frankfurt, ECB president Mario Draghi sent ambiguous signals on rate outlook ahead, citing "substantial downside risks" to the euro area, but highlighting signs of economic stabilisation.
Mr Draghi also noted that banks that have borrowed money from the ECB in its three-year refinancing operation "are not the same" as those redepositing it with the central bank.
As well as driving down interest rates along the yield curve, he said there are other signs that the money made available by the ECB is flowing through the economy. "We do think that at least this decision has prevented a credit contraction that would have been more serious, much more serious," Draghi said.
Last month the ECB started giving banks ultra-long loans, eased collateral rules and kept buying government bonds - as well as cutting interest rates for the second time since Mr Draghi took over the presidency on November 1st.
Responding to today's decision to leave its interest rate unchanged at 1 per cent, PIBA, Ireland's largest group of independent mortgage and insurance brokers, said it was "disappointing that the ECB has not moved further given the very difficult economic environment and outlook."
Rachel Doyle, director of PIBA Mortgage Services said: "With consumer sentiment at a low ebb and with the continuing uncertainty in the eurozone a more aggressive cut is warranted, bringing the rate down to 0.5 per cent, similar to that applying in the UK."
The Bank of England also refrained from announcing new stimulus today, maintaining its £275 billion bond-purchase target and holding its key rate at 0.5 per cent, as the UK.
"We've had a couple of indications that things may not be as bad in 2012 as people expected them to be," said Tobias Blattner, an economist at Daiwa Capital Markets who previously worked at the ECB. "The ECB has factored in this downturn that we're seeing, which reflects the view that the recession won't be a very deep one."
Bloomberg
