By Jana Randow Nov. 5 (Bloomberg) -- The European Central Bank may signal it’s moving closer to withdrawing emergency stimulus measures after leaving its benchmark interest rate at a record low today. ECB officials meeting in Frankfurt kept the key rate at 1 percent, as predicted by all 56 economists in a Bloomberg News survey. Economists and investors will listen to President Jean- Claude Trichet, who holds a press conference at 2:30 p.m., for clues on when the ECB will start scaling back lending to banks and whether it will charge them more for 12-month money. “There’s an awful lot happening behind the scenes and some big decisions are looming,” said James Nixon, co-chief European economist at Societe Generale in London. “But Trichet is going to put on a calm face. At most, he will hint the ECB is moving a little closer to an exit.” Council member Axel Weber said last week commercial banks need to prepare for a “gradual withdrawal” of the ECB’s liquidity, and signaled its 12-month loans in December may be the last. Other policy makers have expressed concern that the economy remains too fragile to remove stimulus measures, and may want more evidence of a recovery before committing to action. The euro’s 18 percent gain against the dollar since mid- February is undermining exports and threatening to damp growth next year. Bank of England, Fed The Bank of England left its key rate at 0.5 percent today and expanded its asset-purchase program by 25 billion pounds ($41 billion) to 200 billion pounds. The Federal Reserve yesterday left its benchmark rate between zero and 0.25 percent and restated its intention to keep interest rates “exceptionally low” for “an extended period,” even as it acknowledged the U.S. economy is picking up. The 16-nation euro area probably returned to growth in the third quarter, ending its worst recession since World War II. The region’s service and manufacturing industries grew for a third month in October and business confidence rose to the highest level in more than a year. The economy will expand 0.7 percent in 2010, the European Commission said Nov. 3, revising its forecast from a 0.1 percent contraction. ‘Better Than Stabilizing’ “The economy is doing better than just stabilizing,” said Laurent Bilke, senior economist at Nomura International in London. Still, Trichet won’t want to sound too optimistic about the outlook because that could fuel expectations of a credit tightening and drive up demand for the ECB’s 12-month loans, he said. The ECB will offer banks unlimited funds for a year for the third time on Dec. 15. Banks drew 75 billion euros ($111 billion) at the last offering in September, down from 442 billion euros in the first tender in June. Trichet has kept open the option of charging a higher interest rate on the December loans. “Some of the new instruments will be needed longer than others,” Weber, who heads Germany’s Bundesbank, said on Oct. 29. “From today’s perspective, the unlimited allotment in our main refinancing operations will have to be maintained for a longer period of time than the guarantee of very long-term liquidity.” The same day, Belgium’s ECB council member, Guy Quaden, signaled he doesn’t expect the bank to change its policy stance anytime soon. ‘Very Weak’ “It’s probable that in the coming months inflation will remain very weak and the economic recovery fragile,” Quaden said. “Conclusions to draw for the monetary policy stance seem very obvious.” Both Weber and Quaden spoke during the so-called purdah period, the week before a rate decision when ECB officials are supposed to refrain from commenting on monetary policy. “Council members are becoming vociferous again and Trichet is probably not really comfortable with that,” said Colin Ellis, an economist at Daiwa Securities in London. Trichet will “do his utmost to avoid a showdown, but clearly there will be a vigorous debate,” he said.

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