The European Central Bank left its benchmark interest rate unchanged at one per cent for the 16th consecutive month on Thursday, even as it upgraded its economic forecast for this year and next.

After announcing that the bank would hold steady on rates, bank president Jean-Claude Trichet updated the bank's economic projections for the region.

The bank now expects economic growth of around 1.6 per cent in 2010, well above the one per cent it was forecasting as recently as June.

For 2011, the bank upgraded its forecast from 1.2 per cent to 1.4 per cent.

"The upgrade to both years was thanks largely to the much better-than-expected second quarter, which was partly due to temporary factors," such as Germany's booming exports, which are not expected to last, BMO economist Benjamin Reitzes said.

Although the bank declined to raise rates, the bullish updates opened the door to that happening in the near future. The bank's benchmark rate has been frozen at one per cent since May 2009.

"Even so, the risks to the economic outlook are slightly tilted to the downside," Reitzes said. "Taken with projections of below-target inflation, we expect the ECB will remain on hold throughout 2011."

U.S. Federal Reserve chairman Ben Bernanke recently conceded that the Fed may have to back another round of monetary easing if the U.S. economy continues to weaken.

With files from The Associated Press