FRANKFURT, Germany (AP) — The European Central Bank left its benchmark interest rate unchanged at a record low 1 percent on Thursday while it waits to see whether the economy needs more help as the 17 countries that use the euro struggle with a debt crisis and likely recession.
Bank President Mario Draghi will face questions at a news conference shortly about whether the bank will contribute to a new bailout for Greece.
The ECB bank could do that by giving up profits on the Greek government bonds it bought at knock-down prices to help Greece fight the debt crisis.
The bank has now left rates alone for two straight meetings while it waits to see whether the eurozone economy needs more stimulus from even lower rates. The bank cut the refinancing rate, the rate it charges banks for borrowing, by a quarter point in November and December.
The Bank of England also left rates unchanged but announced it would buy 50 billion pounds ($79 billion) more in bonds to stimulate the lagging British economy. Output contracted 0.2 percent in the fourth quarter and another quarter of shrinkage would officiall mean recession.
Two rate cuts by the ECB in November and December, and a massive offer of cheap credit to banks, have been given credit for helping steady financial markets and ease access to credit by indebted governments.
The ECB now must read mixed signals from the economy, with some indicators, such as Germany's Ifo index of business sentiment, pointing up while other signs such as German exports have pointed down.
Many economists think the eurozone economy shrank in the fourth quarter and is going through a period of weakness, with the main question being how deep will the downturn be and how quickly things will pick up again.
The bank has another offer of credit to banks coming up for allotment on Feb. 29, and some analysts think the takeup could exceed the €489 billion from the first one on Dec. 23. That move is credited with easing fears of imminent meltdown from the government debt crisis. It helped banks pay off bonds coming due in the first quarter, and some of the flood of money was used by banks in financially weak countries to buy their governments bonds.
The stronger demand for short-term government bonds eased access to credit for countries such as Italy and Spain, which are struggling to keep fears of default from turning into self-fulfilling panic.
Greece, Ireland and Portugal have already needed bailout loans from the eurozone governments and the International Monetary Fund to avoid disruptive debt defaults. Greece is in the process of negotiating a debt reduction with its creditors.
Many economists warn that the liquidity blast is only a temporary respite. The crisis still threatens disruption from Greece, which is in difficult negotations over austerity measures in return for another bailout. Without the bailout, Athens faces the prospect of a potentially devastating default in March, when it has a bond redemption to pay.
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