2012.05.03 15:15:04 ECB Leaves Interest Rates Unchanged

FRANKFURT -- The European Central Bank left its key interest rates unchanged at its monthly meeting Thursday. The decision means the ECB's main interest rate, the rate it charges for its regular refinancing operations, remains at a record low of 1%, where it has stood since December. The decision was in line with expectations--all 47 banks and think tanks polled by Dow Jones Newswires ahead of the announcement expected rates to remain unchanged at the May meeting. Attention now shifts to ECB President Mario Draghi's 1230 GMT press conference in Barcelona, Spain. Market observers will be listening for clues on whether the central bank will take weak forward-looking indicators as an incentive to consider further monetary easing measures over the coming months. The ECB was praised for issuing two three-year loans to euro-zone commercial banks late last year and early this year, pumping over EUR1 trillion into the banking system. The extra funds and the accompanying confidence boost in the markets helped push governments' borrowing costs down as banks used the new money to buy up euro-zone government bonds. The three-year loan also encouraged banks to ease tightening of credit standards in the first quarter of the year, the ECB's bank lending survey showed last week. Despite the positive effects from the three-year loan, or LTRO, it is very unlikely the ECB will announce a new one in the near future. At the recent spring meetings of the International Monetary Fund, the ECB "sent signals in discussions that they are not currently considering another long-term refinancing operation," an official with knowledge of the matter said. The ECB fears that continuing to provide cheap money through long-term maturity loans will only encourage banks to become "addicted" to central bank funds. It would also delay the reforms that both banks and governments need to make to their balance sheets. The ECB's resistance comes against the backdrop of increasingly negative economic data from the 17-country euro zone. On Wednesday, data showed the euro-zone's manufacturing sector contracted at its sharpest pace in nearly three years, while unemployment rose to match a record high in March. The data suggest the euro-zone economy could continue to shrink even into the second quarter of 2012. The weak economic outlook will increase calls for the central bank to pump more money into the euro-zone economy. Price developments in the currency zone might also dissuade the central bank from taking bold measures for now. Consumer price inflation remains above the central bank's benchmark of just below 2%. The European Commission's statistics authority Eurostat said Monday that consumer prices were up 2.6% in April, after March's 2.7%. -By Todd Buell, Dow Jones Newswires, +49-6929725514, todd.buell@dowjones.com (END) Dow Jones Newswires May 03, 2012 08:15 ET (12:15 GMT)