European Central Bank keeps benchmark euro zone interest rate at 1%

The European Central Bank (ECB) kept its benchmarch interest rate on hold at a record low of 1 percent on Thursday, as policy makers waited to assess whether the euro bloc’s economy is working its way out of a brief slowdown or headed for further trouble.

The bank’s president, Mario Draghi, said the final three months of 2011 had been very weak, but that recent evidence indicated some stabilization among euro zone members.

“The economic outlook remains subject to high uncertainty and downside risks,” he told a press conference in Frankfurt today, after the ECB announced it was leaving its interest rates unchanged, Bloomberg reported.

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The ECB is still trying to see what effect huge ECB loans made available to banks in December at very low interest rates are having. The ECB hoped that the massive cash injection would fortify Europe’s banking industry, thereby helping banks loan out money to businesses.

“The use of these proceeds is a business decision,” said Draghi, according to the BBC.

“Our primary interest is lending to the real economy and that’s where we see most of the credit tightening in all three sectors, namely corporate, household and consumption.”

Another instalment of ECB 1 percent loans will be made available to banks at the end of this month. According to The New York Times, some analysts predict that banks will borrow up to $1.33 trillion, more than double what they drew in December’s offering.

Draghi refused to discuss the ECB’s holding of Greek debt during the press conference, and dismissed rumors that the bank might be exploring ways to take losses on those holdings. 

"All this talk about the ECB sharing the losses, it's ungrounded, it's unfounded," he said.

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