FRANKFURT: European Central Bank President Jean- Claude Trichet said he’s confident Greece can get its budget deficit under control and signaled officials have no plans to raise their key interest rate from a record low of 1%.
 
“We expect and we are confident that the Greek government will take all the decisions that will permit them to reach that goal” of cutting the deficit below the European Union’s limit, Trichet said at a press conference in Frankfurt. Earlier, he said that the ECB’s current interest rate is “appropriate.”
 
Trichet’s comments on Greece contrast with the tougher tone of his Jan. 14 press conference, when he said the nation can’t expect any “special treatment” from the EU. Since then, Greece has stepped up efforts to cut its deficit and the yield on two- year government bonds jumped to the highest in almost a decade.
 
Proposals announced this week on freezing wages and revamping the pension system “are steps in the right direction,” he said.
 
The euro slipped to $1.3812 from $1.3850 before the press conferenced. The yield on the Greek two-year bond was little changed at 6.408%. Its German equivalent was also little changed at 1.079%.
 
Trichet also stressed that International Monetary Fund forecasts show the euro region’s combined budget deficit of 6% for this year will be smaller than the shortfalls forecast for the US and Japan.
 
New forecasts

Trichet said he’ll wait for new growth and inflation forecasts in March before deciding when the ECB will step up the withdrawal of measures used to battle the financial crisis.
 
“We will continue our enhanced credit support to the banking system, while taking into account the ongoing improvement in financial market conditions,” he said.
 
The Bank of England earlier kept its key rate at a record low of 0.5% and paused its bond-purchase program.
 
Australia’s central bank this week unexpectedly paused in its rate-tightening cycle after last year’s increases drove up the nation’s currency, hurting exports. The Federal Reserve last week restated its intention to keep interest rates near zero for an “extended period,” saying the pace of economic recovery “is likely to be moderate for a time.”

While the ECB isn’t forecast to raise borrowing costs before the fourth quarter, it has started to unwind its emergency lending programs. The central bank in December tightened the terms of its final tender of 12-month loans, one of its flagship measures during the crisis, and said it will discontinue its six-month loans after March.

The ECB is still lending commercial banks as much money as they need at its benchmark rate, rather than having them bid for the cash, in an effort to get credit flowing through the economy.