The European Central Bank (ECB) held its benchmark refinancing rate steady at 0.75 percent, as expected, but signaled that it may cut rates if the economy continues to weaken by saying it will be monitoring economic data “very closely” in coming weeks for the impact on its monetary policy stance.
The ECB, which cut its rate by 25 basis points in 2012, said economic activity remained weak at the start of this year but it is still projecting a gradual economic recovery in the second half of 2013.
However, it stressed the downside risks to this forecast, including weaker-than-expected domestic demand and slow or insufficient structural reforms, which would “have the potential to dampen the improvement in confidence and thereby delay the recovery,” ECB President Mario Draghi said in his prepared statement to a press conference.
Last month ECB staff cut their growth forecast for the 17 nations that share the euro to a contraction in Gross Domestic Product of between 0.9 and 0.1 percent this year. In the fourth quarter of 2012, GDP shrank by 0.6 percent, the fifth quarterly contraction in a row, for an annual drop of 0.9 percent.
“Against this overall background, our monetary policy stance will remain accommodative for as long as needed,” Draghi said, adding: “We are also closely monitoring money market conditions and their potential impact on our monetary policy stance and its transmission to the economy.”
