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ECB holds key rate steady at 0.15%

The European Central Bank held its key interest rates unchanged at its regular policy meeting on Thursday, a month after taking unprecedented measures to ease monetary conditions in the 18-country euro area.

FRANKFURT: The European Central Bank held its key interest rates unchanged at its regular policy meeting on Thursday, a month after taking unprecedented measures to ease monetary conditions in the 18-country euro area.

As widely expected, the ECB's decision-making governing council decided to hold the bank's main refi refinancing rate steady at 0.15 percent, the marginal lending rate at 0.40 percent and the deposit rate at minus 0.10 percent.

ECB-watchers had not been expecting any new policy moves this month after the central bank unveiled a package of extraordinary measures in June in its battle to prevent the single currency area from slipping into deflation.

At that meeting, the ECB entered uncharted waters, taking one of its key interest rates into negative territory for the first time.

This means that banks will be charged for parking funds at the ECB to encourage them to lend to businesses and consumers instead.

ECB chief Mario Draghi also unveiled plans to pump more liquidity into the financial system later this year using the Targeted Long-Term Refinancing Operation (TLTRO).

The TLTRO measures are different to the steps the ECB took at the end of 2011 and the beginning of 2012 to boost liquidity.

At that time, banks were deemed to not be lending enough to the small- and medium-sized companies that form the backbone of the eurozone economy.

This time, the ECB is instead targeting loans to encourage banks to lend to households and non-financial corporations.

The ECB "is very unlikely to unveil any new policies today as it implements and judges the effect of the raft of measures announced in June," said Capital Economics economist Jennifer McKeown.

"Draghi will probably clarify some of the details behind those policies, perhaps explaining the mechanics, for example."

Eurozone inflation is still stuck at the lowest levels since the financial crisis, data from the European Union's official data agency showed on Monday.

Authorities across the eurozone are closely watching the inflation rate in the hope that it will edge up towards the bank's target of just under 2.0 percent.

Inflation across the 18-nation eurozone was 0.5 percent in June -- the same level as in May.

This means that inflation is at the lowest level since the financial crisis of 2008-2009 nearly froze the market on which banks lend to each other and caused recession in several advanced economies.

Since unduly low inflation raises a risk of deflation which is damaging for the economy and notoriously difficult for central banks to reverse, the ECB has stepped in.

McKeown at Capital Economics warned that last month's policy moves "will not transform the economic or inflation outlook".

Draghi "might follow some of his colleagues in suggesting that interest rates will be on hold until the end of 2016. He could also explain that a broader programme of quantitative easing involving government bond purchases is possible if inflation fails to rise soon," she said.

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