European central bank:ECB holds rates, extends liquidity lifeline
FRANKFURT, Sept 2 (Reuters) - The European Central Bank held interest rates at a record low on Thursday and extended its liquidity safety-net in response to a lopsided recovery and worries about vulnerable banks.
ECB staff also raised their growth forecasts for this year and next but ECB President Jean-Claude Trichet said while recent economic data had been stronger than expected, recovery would occur "at a moderate pace with uncertainty still prevailing".
The ECB extended its commitment to provide unlimited one-week and one-month funding until at least Jan. 18. It will also offer unlimited funds at its three-month tenders until at least the end of this year. [ID:nLDE6801C7]
All 78 economists in a Reuters poll predicted the ECB would leave rates at 1 percent EUECBR=ECI for the 16th month in a row and the median expectation is for no change until the fourth quarter of 2011. [ECB/INT]
Analysts also expected the ECB's 22-member Governing Council to maintain the liquidity lifeline relied on by banks in countries like Spain, Ireland and Greece.
Borrowing from the ECB by banks in these countries has hit record highs in recent months even though total lending has fallen about a third since July ECBOMO=ECBF, highlighting the difficulties still faced by some institutions. [ID:nLDE67I0KO]
Bond yield spreads for peripheral government bonds over German Bunds have jumped amid growing evidence of a split between core euro countries and debt-ridden laggards.
Germany grew at its fastest rate since reunification in the second quarter and more than twice as fast as the euro zone average, confirmed at 1.0 percent on Thursday.
Greece is still in recession and Portugal and Spain managed just a tenth of Germany's growth rate.
"Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors," Trichet told a news conference. "Looking ahead, the recovery should proceed at a moderate pace with uncertainty still prevailing."
9/02/2010 06:38:00 AM
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