ECB keeps key rate at record low of 1%

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: The European Central Bank kept interest rates steady as it rolls out new tools to battle the worst recession since World War II.

ECB officials meeting in Luxembourg on Wednesday held the benchmark rate at a record low of 1%, as predicted by all but two of 60 economists in a Bloomberg News survey. The central bank, led by president Jean-Claude Trichet, may keep the rate there until the fourth quarter of 2010, a separate survey shows.

The ECB last week lent banks a record 442 billion euros ($621 billion) for 12 months at its key rate in the hope they will pass on cheaper credit to companies and households. It will also start buying 60 billion euros of covered bonds this month to encourage lending. Trichet may on Thursday unveil further details of the plan, which was a compromise after policy makers failed to agree on a package twice that size.

“Rates are on hold and now they’ll focus on the implementation of their non-standard measures,” said Julian Callow, chief European economist at Barclays Capital in London. “There are concerns about pockets of the banking sector and if things turn down again, they might have to contemplate buying commercial paper and corporate bonds.” The world financial and economic crisis is “far from over” two years after it began, HSBC Holdings Plc chairman Stephen Green said on June 30. “We cannot even say we are past the worst.” Trichet will hold a press conference at 2:30 pm in Luxembourg. The ECB Governing Council meets twice a year away from its Frankfurt headquarters. The euro slipped 0.3% to $1.4096 on Thursday.

The central bank for the 16-member euro region has been reticent to follow the examples of the US Federal Reserve, Bank of England and Bank of Japan, which have lowered their main rates to close to zero and are buying government and corporate bonds to reflate their economies.

Sweden’s Riksbank on Thursday unexpectedly cut its benchmark rate to 0.25%, predicted it will stay there until autumn next year and said it will offer a financial package to banks.

The ECB, whose key rate is still the highest among the Group of Seven nations, has focused on getting credit flowing through the banking system again, arguing that two thirds of its economy is financed by banks.