The European Central Bank took further steps to unwind the extraordinary help it has given the euro zone economy in the global crisis today, although it still forecasts a fragile recovery.
The ECB said it would return next month to ordinary competitive tenders for the three-month loans it gives banks, a sign that it is more comfortable with the state of the system and the latest stage in a gradual withdrawal of billions pumped into banking in the worst days of the crisis in 2008.
That, and the decision to keep interest rates unchanged at a record low for the 10th month running, were in line with market expectations.
Meanwhile, European Central Bank president Jean-Claude Trichet said it would be 'absurd' to talk of Greece leaving the euro zone. 'Leaving the euro area is an absurd hypothesis,' Trichet said.
'Greece today is in a much better state, taking into account its own activity, its own output, than it was before,' he added. The Greek government, scrambling to avert bankruptcy, outlined tax hikes and spending cuts yesterday designed to save the state €4.8 billion and to restore its tattered credibility on financial markets.
He also said he did not believe International Monetary Fund financial help to Greece would be appropriate.
'I do not trust that it would be appropriate to have the introduction of the IMF as a supplier of help through stand by or through any kind of such help' to Greece, Trichet said.
As expected, the European Central Bank also kept access to one-week loans unlimited, with policymakers keeping one eye on a massive €442 billion of 12-month ECB loans that banks must repay at the start of July.
The bank's new staff forecasts also showed little improvement from the last update last December, underlining that Europe's economic recovery looks far from firmly set.
Growth in 2010 was seen in a range of 0.4-1.2% from between 0.1-1.5% in December. Growth in 2011 was put at 0.5-2.5% from 0.2-2.2%.
'The latest information has also confirmed that the economic recovery in the euro area is on track, although it is likely to remain uneven,' ECB President Jean-Claude Trichet told a news conference in Frankfurt today.
'Overall, the Governing Council expects the euro area economy to grow at a moderate pace in 2010 in an environment marked by continued uncertainty,' he said.
The rate decision came as no surprise, as the 87 economists polled by Reuters were unanimous this month in seeing no change in rates and on average expected the first rise only in the fourth quarter. Money markets expect no increases until well into next year.
ECB staff saw inflation in a range of 0.9-2.1% in 2011 from 0.8-2% in December's forecast, the crucial period for today's monetary policy decisions given the long lead time and implying little need for rapid interest rate rises.
