The European Central Bank left its benchmark interest unchanged at its final rate-setting session of this year after economic sentiment improved and borrowing costs eased for troubled members of the currency-bloc.
The central bank of 17 nations held the refinancing rate unchanged at 0.75 percent for a fifth successive month in December following the Governing Council meeting in Frankfurt on Thursday. The decision was in line with economists' expectations.
The deposit rate, which is already at zero, was left unchanged and the marginal lending facility was held at 1.50 percent.
The mere announcement of bond-buying by ECB President Mario Draghi in September calmed the markets and brought down borrowing costs for troubled euro members Spain and Italy.
Spain has not made any bailout request thus far and the country has held successful debt auctions in recent weeks. It is still uncertain if the central bank would actually need to intervene in the bond market to bring down yields.
"At some point in time, the ECB will have to prove that the new bond buying programme is more than only an illusionary giant," ING Bank Senior Economist Carsten Brzeski said. "Moreover, if the current tender stabilisation turns out to be a false start, even a rate cut is still possible."
Draghi is set to hold his customary post-decision press conference at 8.30 am ET, where he is expected to reveal a cautious stance. He will also announce the latest ECB staff macro economic projections.
Though there have been some positive signs on the data front, the overall picture remains consistent with steep contractions in euro area GDP, Capital Economics Chief European Economist Jonathan Loynes said.
"The new staff ECB economic forecasts to be revealed at the press conference are likely to reflect this weakness in a lower projection for euro-zone GDP growth in 2013 than the mid-point of +0.5 percent published back in September," he said.
"Despite this, however, it seems unlikely that President Draghi will indicate a greater willingness to provide further general policy support, either conventional or unconventional."
The euro area economy shrunk 0.1 percent sequentially in the third quarter, slipping into a technical recession. The previous recession was in 2008, which lasted until the third quarter of 2009. Despite the return to recession, Eurozone economic confidence strengthened in November, marking the first improvement since February.
While inflation fell to a two-year low of 2.2 percent in November, the unemployment climbed to a new high in October. The ECB targets inflation 'below, but close to 2 percent'.
by RTT Staff Writer
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