The European Central Bank kept benchmark interest rates unchanged at a record low of 1 per cent today as ECB president Jean-Claude Trichet said the euro zone economy will grow at a moderate rate in 2010.
All 80 economists in a recent Reuters poll had expected rates to remain on hold for the eighth month in a row, and all but a handful see the central bank keeping them there well into the second half of the year as it waits for the recovery to firm.
However, Mr Trichet warned recovery will be uneven.
"The Governing Council expects the euro area economy to grow at a moderate pace in 2010, recognising that the recovery process is likely to be uneven and that the outlook remains subject to uncertainty," Mr Trichet told a news conference.
"The latest information has also confirmed that, towards the end of 2009, euro area economic activity continued to expand. However, some of the factors supporting the growth in real GDP are of a temporary nature."
He expected low inflationary pressure over the medium-term.
ECB watchers also expect Mr Trichet to give little new information on its plan to wean the banking sector off its support measures, although it may keep the process inching forward with a decision on whether or not to keep up dollar and Swiss franc lending operations.
"The press conference today will probably be a holding operation," BNP Paribas economist Ken Wattret said.
"We won't be looking to see any major changes in assessment ... their view is likely to be fairly similar to December."
Last month, the ECB started reeling in its crisis support measures - mainly unlimited, ultra-cheap loans to banks, which have pushed bank-to-bank lending costs to record lows.
But Greece's deteriorating fiscal situation is one of many bumps on the recovery horizon, with recent mixed data also highlighting the need for policymakers to be careful in removing the financial crutches.
Greece announced key targets of a three-year plan to shore up its public finances today, following visits by ECB and European Commission officials last week and ahead of the release of an EU review of Greece's stability program.
Investors remain unconvinced the country can get its budget into shape, with the cost of insuring Greece's sovereign debt against default rising to a record high.
Deutsche Bank economist Mark Wall said Mr Trichet would try to say as little as possible but anything less than another vote of confidence in Greece's ability to handle matters could set off alarm bells.
On the economic outlook, Mr Trichet is expected to stick to a cautiously optimistic view.
Data showed the mood surrounding the economy improved more than expected in December, but unemployment jumped above 10 per cent, retail sales disappointed and money supply shrank for the first time on record.
"The Governing Council should continue to signal that policy will remain accommodative for a considerable period," said Fortis Bank economist Nick Kounis. "We think it will take some time before it begins to tighten policy."
Reuters