* ECB keeps main refinancing rate at record low of 0.25 pct
* Forecasts inflation below 2.0 percent target through 2016
* Decides not to inject further liquidity into financial
* Deposit rate remains at zero
By Leika Kihara
FRANKFURT, March 6 The European Central Bank
left interest rates on hold and unveiled no other measures to
bolster a fragile euro zone recovery on Thursday despite
forecasting low inflation for years to come.
The ECB left its main interest rate at 0.25 percent, a move
generally expected by markets, and held the deposit rate it pays
banks for holding their money overnight at zero.
New forecasts from ECB staff put inflation at 1.0 percent
this year, 1.3 percent in 2015 and 1.5 percent in 2016 - below
its target of close to 2 percent all the way through the
ECB President Mario Draghi told a news conference that the
latest economic information suggested recovery was on track and
needed no extra push for now.
"We saw our (economic) baseline by and large confirmed," he
said. "The news that has come out since the last monetary policy
meeting is also, I would say, by and large on the positive
Inflation has been in what Draghi calls the "danger zone"
below 1 percent for five months now and was running at 0.8
percent at the last count.
The new forecasts saw the euro zone economy growing by 1.8
percent in 2016 after 1.5 percent in 2015 and 1.2 percent this
year, a slight upwards revision from its previous 2014 estimate
but well below what is considered a trend rate of growth.
"Annual HICP (EU harmonised) inflation rates are expected to
remain at around current levels in the coming months," Draghi
said. "Thereafter, inflation rates should gradually increase and
reach levels closer to 2 percent."
The forecasts presume an unchanged exchange rate and falling
Draghi rejected comparisons with Japan's experience of
deflation which became so entrenched that companies and
households held off on spending on expectations of lower prices
ahead, leading to two decades of economic stagnation.
ECB policymakers have insisted that so far there is no sign
of euro zone citizens deferring spending plans.
The lack of action was significant since last month Draghi
had signalled that by the March policy meeting the ECB would
have enough information to judge the need for fresh stimulus.
The International Monetary Fund believes more needs to be
Reza Moghadam, head of the IMF's European Department, said
in a blog on Wednesday that the ECB should cut interest rates
and pump out more money, perhaps through QE.
NO MOVE ON LIQUIDITY
Like the Bank of Japan, which meets to set policy next week,
the ECB is running out of room to cut interest rates putting the
onus on alternative policy measures.
An ECB source had predicted it would stop offsetting money
it put into the financial system through government bonds it
bought at the height of the euro debt crisis by withdrawing an
equivalent amount of funds from week to week.
ECB policymaker Ewald Nowotny told Reuters last month that
he and his colleagues were nearing unanimity on what would have
marked a big philosophical shift and a step towards U.S.-style
quantitative easing (QE).
The resultant release of around 175 billion euros ($240
billion) would have roughly doubled the amount of excess
liquidity in the financial system, helping to bring down
interbank lending rates.
But Draghi said there was no sign of back door monetary
tightening via climbing money market rates and therefore no need
to act, for now at least.
"The suspension of sterilisation ... is one of the
instruments that is in our list but we didn't see any
development in the money markets that would lead to that
unwanted tightening of monetary conditions that would justify
the use of this instrument," he said.
He added that the benefits of such a move would be limited
since most of the government bonds the ECB holds would mature in
a few years.