European Central Bank keeps key interest rates unchanged

The European Central Bank (ECB) has kept its benchmark interest rate at a record low of 0.25 per cent despite a general easing of euro zone inflation rate to 0.5 per cent.

The Governing Council of the ECB at its meeting today decided to keep the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.25 per cent, 0.75 per cent and 0.00 per cent, respectively, ECB said in a release.

Euro zone interest rates have remained unchanged since November 2013, when the bank said it expected "a prolonged period of low inflation".

Latest figures showed inflation continued to fall in March to 0.5 per cent, well below the ECB's target of 2.0 per cent.

For six consecutive months euro zone inflation remained below what ECB president Mario Draghi called "the danger zone" below 1 per cent.

It was also the third month in row in which inflation fell.

Addressing a press conference after announcing the policy rates, ECB president Mario Dragh said the signals from the monetary analysis confirmed the picture of subdued underlying price pressures in the euro area over the medium term.

''Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 per cent,'' he said.

ECB, however, fears that lower inflation could harm the euro zone's nascent economic recovery, weakening consumer demand for goods and services as household's put off spending believing prices will continue to fall.

Low inflation also means that governments and businesses find it more difficult to repay their debts.

Looking ahead, he said, the ECB will monitor developments very closely and consider all instruments available to maintain a high degree of monetary accommodation and to act swiftly if required.

He also did not rule out a further monetary policy easing and said he expected the key ECB interest rates to remain at the present or even lower levels for an extended period of time.