European Central Bank keeps stimulus in place

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

Draghi said that the brighter outlook is largely a result of the bank's efforts and the economy still needs central bank support.

But the bank's announcement Thursday reiterated that its stimulus in the form of monthly bond purchases could be stepped up if the economic outlook worsens.

"Numerous ECB officials, including Mario Draghi, have highlighted that the pickup in inflation is due to global factors that have since waned", said Aviva Investors' head of rates Charlie Diebel.

The European Central Bank (ECB) has removed a reference to moving interest rates lower, a vital sign it is acknowledging the improving European economy in an attempt to placate critics of its ultra-loose monetary policy. While few expect that to happen, the words underline that the bank is not yet willing to call time on the stimulus program.

Ending the bond purchases and raising interest rates could have wide-ranging effects, such as a stronger euro and higher interest costs for heavily indebted governments.

The evidence is piling up that the growth in the eurozone has kicked into a higher gear and the region is recovering from the Great Recession and its crisis over high debt.

The change in the bank's stance was widely expected among analysts, who believe it could be the first step towards the bank winding down its 60-billion-euro ($67.4 billion) per month bond-buying programme next year.

Still, inflation is one of the weak points.

Moving forward, investors concurred that the question mark over inflation in the eurozone will be the deciding factor over whether European Central Bank president Mario Draghi decides to raise rates in the future.

Volatile food and energy prices are to blame for such rapid changes, policymakers say, while "core", or underlying inflation discounting those elements remains sluggish.

"They have omitted the guidance that interest rates might be cut, but they have kept all their other easing measures in place and the comment that quantitative easing could be extended if needed", Sonja Marten, senior FX strategist at DZ Bank in Frankfurt, said.

But they also dropped a long-standing commitment to dropping rates yet further if necessary, indicating central bankers see reduced risk of economic shocks to the 19-nation single currency area.

On Thursday, the bank has kept its short-term benchmark rate that steers short-term rates at a record low of zero.

- The Stoxx Europe 600 Index rose 0.3 percent, led by banks and insurers.

  • Zachary Reyes