European Central Bank President Jean-Claude Trichet has decided to extend emergency lending measures into January, in order to secure the region's uneven economic recovery.
In remarks made after the ECB announced its was keeping interest rates unchanged at one percent for a sixteenth straight month, Trichet said that banks will be provided unlimited one-week and one-month loans until at least January 18, 2011.
The central bank has also decided to conduct 3-month longer-term refinancing operations in October, November and December of this year, as fixed rate tender procedures with full allotment.
Regarding monetary policy, Trichet said the ECB has no intention to signal any change in interest rates, as the European economy chugs along on the rocky road to recovery.
"Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors," Trichet noted. "Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing."
Earlier in the day, it was revealed that euro area real GDP grew strongly on a quarterly basis, increasing by 1.0% in the second quarter of 2010, supported by ongoing growth at the global level.
The ECB now expects euro-zone growth to be in a range between 1.4% and 1.8% in 2010 and in a range between 0.5% and 2.3% in 2011. The range has also been revised upwards for both 2010 and 2011, reflecting carry-over effects from the projected stronger growth towards the end of 2010.
However, with US economy now weakening after a relatively a brief rebound from the worst recession in decades, Trichet told reporters that policymakers "must remain cautious and prudent -- we don't declare victory."
He noted the risks to this improved economic outlook are slightly tilted to the downside.
Trichet said that global trade may continue to perform more strongly than expected, thereby supporting euro area exports, but, without specifically mentioning the United States, expressed concerns about growth prospects in other advanced economies.
Europe's top central banker also expects inflation to remain in check due to low domestic price pressures.
"Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term," he said in prepared remarks.
Inflation outlook was revised slightly higher to account for higher commodity prices.
Annual HICP inflation is seen in a range between 1.5% and 1.7% this year and between 1.2% and 2.2% for 2011. Euro area annual HICP inflation was 1.6% in August, as per Eurostat's preliminary estimate, compared with 1.7% in July.
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