3rd LD Writethru: ECB holds record low interest rates, plans to "reconsider" monetary policy in March

The European Central Bank (ECB) held its key interest rates at record low levels on Thursday and planned to "reconsider" its monetary policy early March in a bid to lift weak inflation and stimulate the economy.

The ECB decided to keep the interest rate on main refinancing operation, a guidance cost for commercial loans, unchanged at 0.05 percent. The interest rate on marginal lending facility, the one which commercial banks pay for overnight borrowing from the central bank, stood at 0.3 percent. The rate on deposit facility also stayed at minus 0.3 percent, meaning that banks have to pay the ECB for placing their extra money at the central bank instead of lending them out.

"We decided to keep the key ECB interest rates unchanged and we expect them to remain at present or lower levels for an extended period of time," ECB President Mario Draghi said.

By keeping the interest rates at record lows, the ECB was trying to lift inflation rate in the euro zone to a healthy level and stimulate the sluggish economy in the common currency area via providing additional liquidity.

In December last year, the Frankfurt-based central bank cut the interest rate on deposit facility further deep into a negative territory by 10 basis points. It also decided to extended its asset purchasing program by six months, continuing to inject 60 billion euros (about 64.92 billion U.S. dollars) into the market every month at least until March 2017.

Draghi told reporters that the downside risks faced by the euro zone increased at the year start amid heightened uncertainties of global growth, volatile financial and commodity markets and geopolitical risks. Against this backdrop, the prospect of an inflation rate rebounding in the euro area remained dim.

"Inflation rates are currently expected to remain at very low or negative levels in the coming months and to pick up only later in 2016," he said, referring the sharp drop of oil prices as one of the main reasons for the weak inflation.

In December 2015, the annual inflation rate in the euro zone stood at 0.2 percent, far below a level of just under 2 percent which the ECB considers as being conducive for the economy, heightening concerns that the current measures adopted by the ECB were not sufficient to prevent the euro zone from falling into a dangerous low-inflation area or even a deflation spiral.

"It will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March," Draghi said, "Work will be carried out to ensure that all the technical conditions are in place to make the full range of policy options available for implementation, if needed."

He reaffirmed that the ECB had "the power, willingness and determination to act" and there was "no limit of how far we are willing to deploy our instruments within our mandate" in order to achieve its inflation target of "below but close to 2 percent".

Economists expected the ECB to further cut its interest rates and strengthen its actions on purchasing assets in March.

"Unless oil prices rebound in the coming weeks or the euro zone economy surprises to the upside, it will again be difficult for the ECB not to deliver with new action in March," said Carsten Brzeski, chief economist at ING-DiBa bank, "Judging from today's comments, the most likely common denominator for both hawks and doves should be another rate cut, possibly combined by another marginal fine-tuning of QE."

Capital Economics, a London-based economic research consultancy, expected the ECB to cut the deposit rate by 10 basis points by minimum in March and to purchase assets faster. Enditem