The European Central Bank held interest rates steady again today at a record low of 1 per cent.

The move had been widely expected.

Interest rates dropped to 1 per cent in May 2009, and continued to stay at a record low until April last year, when the ECB raised rates by a quarter of a percentage point. A second rise followed in July last year, bringing the main interest rate to 1.5 per cent.

However, the ECB's plans to increase the rates further were hampered by the slowdown in the global economy and the worsening euro zone debt crisis. Interest rates were lowered by a quarter of a percent in November and December last year, bringing them back to 1 per cent.

At a press conference after the announcement, ECB president Mario Draghi said tentative signs of stabilisation in the euro zone economy remained over the past month but uncertainty remains high.

"Available survey indicators confirm some tentative signs of stabilisation of economic activity at low level around the turn of the year," Mr Draghi said, adding there were still substantial downside risks to the economy from the sovereign debt crisis engulfing much of the euro zone periphery.

Analysts are now speculating that the ECB may lower interest rates further when it meets again next month. "The central bank has never cut its benchmark rate below 1.00 per cent and some members of the governing council are reluctant to take it below that floor," Bloxham Stockbrokers said in a note this morning. "Fresh ECB staff inflation and growth forecasts in March could give the council grounds to reduce rates further then.

"Our own view is that the central bank will cut rates one last time in this easing cycle to 0.75 per cent at some point in the March-May period, brining more relief to hard pressed Irish mortgage holders, though that's about as good as it will get."

While it is due to carry out a second low-interest, three-year loan operation later in February after a €489 billion offering in December, the bank is expected to refrain from announcing new measures.

"There is very little incentive for the ECB to do anything or say anything. It wants to see how things play out," said Société Génerale economist James Nixon. "The ECB has already done a lot, and they have the next three-year LTRO (long-term refinancing operation) at the end of the month."

With unlimited central bank liquidity, the ECB has pushed overnight market rates well below its main refinancing rate and its deposit rate, currently at 0.25 per cent, acts as a floor for money markets.


Additional reporting: Reuters