The European Central Bank held interest rates at a record low as expected today amid patchy economic growth and subdued inflationary pressures.
The ECB has kept the benchmark main refinancing rate steady at 2 per cent for 21 months in a row as it awaits signs that the euro zone economy is finally back on a firm footing.
ECB President Jean-Claude Trichet told a news conference that growth in the second half of 2004 was disappointing but there were signs the worst could be over.
Interest rates were at historically low levels and were making a contribution to the recovery, he said. "The strengthening of domestic demand and in particular consumption may point to the recovery of economic activity and in particular the euro area gaining some momentum," he said.
Mr Trichet unveiled cuts to staff projections for euro zone growth in 2005 and 2006 in the face of faltering exports and weak business confidence, and trimmed the inflation outlook in 2005, making it likely rates will remain on hold for some time to come.
The ECB cut its 2005 growth projection to between 1.2 and 2 per cent from 1.4-2.4 per cent foreseen in December, and trimmed next year's GDP forecast to a range of 1.6-2.6 per cent, from 1.7-2.7 per cent.
Mr Trichet said high oil prices and global imbalances remained a risk to growth, and repeated that sharp moves in currency markets were unwelcome and undesirable for growth.