ECB holds rates at record low

The European Central Bank kept eurozone interest rates at one per cent yesterday, bolstering expectations they will stay there well into next year, and said it would start buying bonds next week.

ECB President Jean-Claude Trichet gave no sign the ECB was planning to move rates from the current record low level soon, saying they remained "appropriate". However, he left the door open for further cuts if needed.

Following a near-half trillion euro cash injection by the ECB last week, Mr Trichet made a point of urging banks to pass on the benefits of ultra-cheap funding the ECB is pouring into the market.

He also revealed the bank will begin its unorthodox programme of buying mortgage and public sector debt-backed bonds on July 6, targeting maturities of between three and 10 years.

National central banks will make 92 per cent of the purchases, and the ECB said they would be able to use their discretion in some cases on whether bonds were eligible or not. As a rule, bonds should be rated at least AA, although some bonds rated as low as BBB- will also be eligible.

The purchase program will kick in as economic data show increasing signs the worst of the economic tempest may now have passed, although the ECB appeared cautious.