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The European Central Bank has opted to leave its main interest rate unchanged at a record low of 0.5pc, as it predicted that the eurozone's economy would recover at a subdued pace over the course of the year.

After cutting its main rate by one quarter of a percentage point in May, the ECB held it this time. It also left the rate on its deposit facility at 0.0pc and held its marginal lending facility - or emergency borrowing rate - at 1.00pc.

The ECB later announced that it expected the eurozone's economy to shrink by 0.6pc this year, predicting that activity would recover over the course of the year, albeit at a subdued pace. That is a greater contraction than its previous forecast for a 0.5pc decline, but it still expects the bloc to return to growth next year, forecasting a 1.1pc expansion.

"The accommodative stance of our monetary policy, together with the signficant improvement in financial markets since mid-2012, should contribute to support prospects for an economic recovery later in the year," ECB president Mario Draghi said at a press conference on Thursday.

He urged eurozone governments to continue consolidating their finances even though borrowing costs have tumbled since the ECB's bond-buying pledge last summer.

"The new European... framework for fiscal and economic policies should be applied in a steadfast manner," he said, warning that countries should not be too optimistic about present benign market conditions.

Earlier this week, Mr Draghi said he believed the eurozone was on track for a "very gradual recovery" later this year, driven by the ECB's loose monetary policy and demand from abroad.

He said that while the outlook is challenging, he still anticiaptes a pick-up in growth this year. Our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year, added the president.

There have been some glimmers of the horizon for the troubled currency bloc. Although the economy entered a sixth quarter of recession in the first three months of the year, shrinking by 0.2pc, that does signal a slower pace of contraction as output shrank 0.6pc in the previous three months.

The smaller fall in the first quarter of this year was mainly thanks to a stabilisation of inventories and household demand, which, unlike in the previous three months, did not weigh down the overall result.

Figures earlier this week also showed that business activity in the eurozone shrank at a slightly slower pace in May, with the bloc's downturn easing for a second consecutive month, although a chronic shortage of new orders means an economic revival still looks a long way off.

However, unemployment is still accelerating to record highs with Greece on Thursday saying that its jobelss rate rose again in March, reflecting the pain of a crippling recession after years of austerity under the country's international bailout.

Unemployment rose to 26.8pc from a downwardly revised 26.7pc reading in February, according to statistics service data.

Asked on Thursday about what eurozone governments have done to address unemployment, Mr Draghi said: "The persuasion in the governing council is that the present levels of unemployment are a combination of cyclical factors but also structural factors.

"It seems like the flexibility of the labour market has been placed only on the shoulders of the young population and that is one of the major reasons for the youth unemployment being so high in some countries."

One door that the ECB will not want to close when it comes to tackling the festering crisis is the option of taking its deposit rate into negative territory from zero now - although few analysts believe it has immediate plans to do so.

At last month's post-rate decision news conference, Mr Draghi said the central bank will look at negative deposit rates "with an open mind and we stand ready to act if needed".

But that might be ammunition the ECB wants to keep unused - at least unless the economy enters a downward spiral. "It's not never-ever, but probably a lot would have to happen for it to happen," ABN Amro economist Nick Kounis said.

Other possible options could include moves to boost lending to small and medium-sized firms, the economy's backbone, although plans to do so are unlikely to have been finalised.

After months of hinting at action, the ECB has lately sought to temper expectations, warning against expecting a bazooka.

ECB Vice-President Vitor Constancio said last week that one should not "overblow" options the ECB has to repair the market for asset-backed securities, which could help access to funding when bank lending channels are blocked.

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