The European Central Bank, as expected, kept its main refinancing rate unchanged at a record low of 1.0 per cent today.
Speaking after the rates announcement, ECB president Jean-Claude Trichet forecast that the euro zone economy would recover gradually in 2010.
"The latest information continues to signal an improvement in economic activity in the second half of this year. The Governing Council expects the euro area economy in 2010 to recover at a gradual pace, recognising that the outlook remains subject to high uncertainty," he said.
He warned that some of the emergency liquidity measures introduced to fight the recession would be withdrawn.
"Not all our liquidity measures will be needed to the same extent as in the past," Mr Trichet told a press conference in Frankfurt.
"The Governing Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term."
He declined to say whether the ECB will apply a spread on next month's unlimited auction of 12-month cash. The euro rose as much as 0.4 per cent to $1.4917 after Mr Trichet's comments.
Mr Trichet warned that very large government borrowing requirements "carry the risk of triggering rapid changes in market sentiment, leading to less favourable medium and long-term interest rates".
He called on governments to communicate and implement "in a timely fashion ambitious fiscal exit and consolidation strategies based on realistic growth assumptions, with a strong focus on expenditure reforms".
The euro traded well off its session lows against the dollar today after Mr Trichet's forecast of economic recovery next year. The euro hit as high as $1.4917 as Mr Trichet spoke.
The dollar was down 0.1 per cent at 90.62 yen, having pared losses after a report showed the number of US workers filing new claims for jobless benefits fell more than expected last week to a 10-month low.
The ECB also kept its overnight deposit rate, which acts as a floor for money markets, at 0.25 per cent and left its marginal lending rate at 1.75 per cent.
The decision came as no surprise. All 78 economists in a Reuters poll expected the ECB to leave rates on hold.
The ECB began cutting rates in October 2008 as the financial crisis wreaked havoc in the euro zone economy, taking them from 4.25 per cent to their current record low of 1.0 per cent in May.
Since the ECB's October meeting, data has broadly supported the view that recovery is progressing in the euro zone.
The Bank of England also kept rates on hold earlier today, leaving them at a record low of 0.5 per cent.
The Federal Reserve yesterday left its benchmark rate between zero and 0.25 per cent and restated its intention to keep interest rates "exceptionally low" for "an extended period," even as it acknowledged the US economy is picking up.