The European Central Bank (ECB) held its benchmark refinancing rate steady at 0.50 percent and revised downward its 2013 forecasts for growth and inflation but expects the economy of the 17-nation area to "stabilise and recover in the course of the year, albeit at a subdued pace."
Helped by stronger exports based on a recovery in global demand, benefits of an accommodative monetary policy, lower oil prices and inflation, ECB President Mario Draghi forecast growth of 1.1 percent in 2014, marginally higher than the previous forecast of 1.0 percent.
For 2013 the ECB forecast that Gross Domestic Product would contract by 0.6 percent, an improvement from 2012's fall of 1.5 percent, but slightly lower than the March forecast of a 0.5 percent decline.
"Against this overall background, our monetary policy stance will remain accommodative for as long as necessary," Draghi said in remarks prepared for a press conference. "In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability."
In the first quarter of this year, the euro area's Gross Domestic Product contracted by 0.2 percent, the sixth quarterly contraction in a row, for annual shrinkage of 1.1 percent, up from a 1.0 percent decline in the fourth quarter.
Inflation in the euro zone rose slightly to 1.4 percent in April from 1.2 percent in March, but remains far below the ECB's target of inflation below, but close to 2.0 percent.
Draghi said he expects inflation to be volatile during the year due to base effects but underlying price pressures will remain subdued due to low capacity utilisation and modest economic recovery.
"Over the medium term, inflation expectations remain firmly anchored in line with price stability," Draghi said.
The ECB staff forecasts inflation of 1.4 percent this year and 1.3 percent in 2014. The forecast for 2013 was revised down due to the decline in oil prices while the 2014 forecast was unchanged.
Last month the ECB cut its refinancing rate by 25 basis points following a similar cut in 2012.