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FRANKFURT: European Central Bank president Jean-Claude Trichet voiced confidence on Thursday about the prospects for an economic recovery as the ECB and Bank of England kept key interest rates at all-time lows.
"There are elements that are undoubtedly more positive now than before," Trichet told a press conference after ECB policymakers decided unanimously to hold its main interest rate at an all-time low of 1.0 percent.
He nonetheless stressed the outlook remained highly uncertain and said: "I don't exclude that we could have contradictory signs" on a potentially "bumpy road" to recovery.
In London, the Bank of England left its key lending rate unchanged at 0.50 percent but surprised markets by saying it will pump an extra 50 billion pounds (59 billion euros, 84 billion dollars) into the economy.
Major central banks are trying to boost flagging economies with ultra-low lending rates and unconventional monetary policies aimed at getting credit flowing again.
Economists said the ECB was likely to keep its rate at 1.0 percent until well into 2010, although Trichet carefully left the door open to a rate cut.
But an ECB statement said the bank expected "a return to positive inflation rates during the second half of the year" and Trichet downplayed growing fears of a deflationary spiral.
He acknowledged that credit supply had become a problem and urged banks "to be in a position to do their job, which is to lend," but also highlighted lower demand for loans in surveys.
"The major part of what we are observing comes from the real economy and the fact that demand for new credit is less and less dynamic," Trichet said.
Deutsche Bank economist Gilles Moec said the ECB's latest bank lending survey indicated "a stabilisation of credit standards, and pointed to an uptick in demand for some classes of credit."
Economic activity has shown signs of picking up in the 16-nation eurozone, while business and consumer confidence surveys also suggest a dogged recession is finally winding down, though rising unemployment could throw a spanner into the works.
In Germany, the biggest eurozone economy, industrial orders jumped by 4.5 percent in June in following a 4.4-percent rise in May, economy ministry data showed.
For the eurozone as a whole, an index of purchasing managers' activity in the manufacturing and services sectors established by the Markit company firmed for the fifth month running in August to its highest reading in a year.
Owing to the brighter figures, "the ECB seems to have become a bit less bearish on the economic outlook," Morgan Stanley economist Elga Bartsch noted.
"Dropping the explicit reference to the recovery only starting in mid-2010 suggests that the September staff projections could reveal a less gloomy GDP (gross domestic product) estimate than the current minus 0.3 percent" for next year, she added.
ECB governors have pumped unlimited amounts of cash to the eurozone banking system and have pledged to buy 60 billion euros (85 billion dollars) worth of low-risk corporate bonds to unblock a crucial business credit market.
Now, "the ECB clearly believes that it can remain on the sidelines and monitor what impact its various policy moves are having," IHS Global Insight's chief European economist Howard Archer said.
Trichet said the bank was ready to unwind enhanced credit measures as soon as necessary and did not rule out raising interest rates before the exceptional moves had been exhausted.
"We never said that we will first unwind all the non-conventional measures that were taken and then after that change rates," the ECB chief stressed. - AFP/de
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