The central bank based in Frankfurt will keep key interest rates unchanged throughout 2011

Jean-Claude Trichet will retire as president of the European Central Bank next month of October with the euro area still need to historically low interest rates, according to economists who accurately predicted the monetary policy in the region this year.

The central bank based in Frankfurt will keep key interest rates unchanged throughout 2011, amid low inflation, moderate growth and the lingering consequences of sovereign debt crisis. The sample was drawn between the forecasters who correctly anticipated in January that the ECB's benchmark this year would remain at 1 percent.

The new year approaches Trichet, celebrates its 68th birthday this week after leading Europe's response to the crisis, which at one point threatened to destroy the single currency and it has engulfed Greece and Ireland. Even after those nations received international bailouts, the cost of insuring the Greek debt surged yesterday to its highest in a month and investors speculate that Portugal can be next to need help. The euro has fallen 8.7 percent against the dollar in 2010.

"The problems in the banking sector will not be resolved quickly, and banks in the peripheral countries continue to need support," said Juergen Michels, chief economist of the euro-region Citigroup Inc. in London. "There will be no significant inflationary pressures to justify a rate increase before 2012."

The 17 economists surveyed this month participated in a similar survey of 61 analysts in January about the outlook for ECB policy in 2010. The median forecast then was the reference point would be 1.5 percent now with Deutsche Bank AG and Merrill Lynch Bank of America analysts predict between 2 percent.

Buying Bonds

The ECB cut its rate from 1 percent in May 2009 to combat the worst recession in its history. A year later, the central bank began to buy government bonds for the first time to ease tensions in credit markets, as investors focused on the huge budget deficits. As recently as this month, the ECB was forced to delay the further withdrawal of unlimited liquidity support to banks in the euro area.

persistent questions about whether Portugal and Spain will require external assistance ECB "patient, cautious and prudent" because it leaves its rate on hold for the next year, said Cedric Thellier, an economist at Natixis in Paris. He says the region faces a slow recovery, even in Germany's strength offsets weakness in the peripheral economies call.

Portugal's credit rating was downgraded yesterday by Fitch Ratings to A + from AA-. The company predicted that the country will suffer a recession next year.

The ECB forecasts growth will slow this month in 2011 to about 1.4 percent from 1.7 percent this year, while inflation grew to 1.8 percent from 1.6 percent. That is still under the bank's target of just below 2 percent. The region will increase in size in January as Estonia becomes the member 17.

Prospects for recession

David Owen, chief economist at Jefferies International Ltd. in London, said the numbers of the ECB implies the "weaker growth in history." Carl Weinberg, chief economist at High Frequency Economics Ltd. in Valhalla, New York, predicts that the economy will "fall into a deep recession, weighed down by a credit crisis and plagued by numerous bank failures." Both analysts expect no change in the key interest rate next year.

Adding to pressure on growth is the push to reduce the budget deficit to pacify investors. Portuguese bond yields to 10 years increased by almost half a percentage point in the past two weeks. Values like those in Greece have returned to the level of 12 percent reached in May. The cost of insuring the Greek debt rose 38 basis points yesterday to 1,019, according to CMA prices for credit default swaps.

Deficit Measures

Measures to restore order to the budget deficit will amount to 1.3 percent of GDP in the euro zone in 2011, with Ireland and Portugal cut by 4 percent and Greece to 6 percent, according to Julian Callow, chief European economist at Barclays Capital. It also forecasts no rate change in 2011.

Analysts at UniCredit SpA, Royal Bank of Scotland Group Plc and Standard Chartered Plc are among five analysts expect the ECB rate hikes begin in the second half of 2011.

"The ECB will have to start re-establish his credentials to combat inflation," said Sarah Hewin, an economist at Standard Chartered in London, which forecast a rate of 1.75 percent was the highest of those surveyed. Jacques Cailloux, chief economist at RBS Eurozone, expected to increase 1.5 percent as strength in the central economies such as Germany keep them "fenced" from strains of the debt.

Rising bond yields led the ECB to increase purchases of bonds after Ireland's aid package. central banks in the region have bought € 72500000000 ($ 95 billion) of debt from the bond program was announced in May. The ECB is also committed to help banks with as much liquidity as necessary during the first quarter for up to three months.

Crisis Response

"The ECB made it clear that in his view, the crisis must be resolved by governments," said Ken Wattret, economist at BNP Paribas SA in London and another meteorologist who was right in 2010. "But governments are not very fast, so the ECB is going to feel continually forced to take their place"

Economists are divided on how long the ECB will have to return to their pre-crisis funding system of cash auctions. While Vander Roost Saluda KBC Asset Management in Brussels expects output to be completed late in the second quarter, Michels of Citigroup said that the ECB will keep providing unlimited liquidity at weekly operations in 2012.

Michels scenario in turn, the responsibility to normalize the ECB's monetary policy for the next president as a career in central banking Trichet comes to an end after almost two decades and eight years at the ECB. Who will replace him will be a topic of discussion for leaders next year with Bundesbank President Axel Weber and Bank of Italy, Mario Draghi most often linked with the job.

"By next November, should be much clearer how the crisis is playing," said Callow, of Barclays Capital. "The challenge for the successor to Trichet is shaping the euro area as an entity with more financial and economic cohesion."