ECB President Jean-Claude Trichet predicts moderate market growth for 2010; Photocredit: World Economic Forum

The European Central Bank (ECB) put its main interest rate on hold for the eighth consecutive month, at a record low of 1 percent, yesterday. Out of 80 economists surveyed in a recent Reuters poll, a handful of them see the bank keeping it there well into the second half of the year.

The overnight deposit rate was also held at 0.25 percent, along with the marginal lending rate, which remains at 1.75 percent. The euro wasn’t affected much, down by 0.2 percent on the day, after hitting a one-month high of $1.4582 on Wednesday, reported Reuters.

The ECB continued to predict “moderate” growth and inflation this year and encouraged markets to keep going until 2011, the expected date of its first interest rate rise. But it also warned that high-borrowing governments risk backlash from the markets, as the bank increases pressure on Greece to take control of its public debts, reported The Financial Times.

At a news conference on Thursday, ECB president Jean-Claude Trichet said highly-indebted countries in the eurozone risked “rapid changes in the market sentiment” hitting economic growth and undermining the credibility of European Union rules and institutions. He stressed greater transparency in budget settings and condemned Greece for its years of misleading statistics and hiding the magnitude of its problems, reported The Financial Times.

Greece revealed its ambitious three-year recovery plan yesterday, pledging to cut the budget deficit from 12.7 per cent to 2.8 per cent of gross domestic product by the end of 2012. But markets reacted negatively: The cost of insuring Greek debt yesterday rose to the highest levels seen since the market was launched in 2004 and the Greek bond markets also hit 12-month lows, reported The Financial Times.

“A lot of people are very cautious about the fiscal situation in Greece,” said Niels Christensen, currency strategist at the financial group Nordea in Copenhagen.

“This seems to have stopped the uptrend in euro/dollar, although it’s not enough to really hurt the euro,” Christensen told Reuters.

But Trichet downplayed the broader effects of the Greek crisis, dismissing as the idea of Greece leaving the eurozone as “absurd” and noting Greece accounted for only about 2.5 per cent of eurozone gross domestic product. He seemed opposed to any form of European bail-out plans saying, “The problem is not to get help but to help oneself.”