Inflation Fears Keep ECB Rates on Hold

Eurozone interest rates have been left unchanged at 4 per cent by the ECB – a clear sign that its fears about inflation continue to outweigh worries about economic growth in the 15-country region.
Financial Times 4/10/2008 6:39:39 AM

The move had been widely expected and means ECB interest rates have been left unchanged since June – despite steep cuts in borrowing costs by the US Federal Reserve. At his press conference later on Thursday, Jean-Claude Trichet, ECB president, is expected to stress the upside risks to inflation, which at 3.5 per cent in March, is at the highest level for almost 16 years. The ECB aims to keep inflation below but close” to 2 per cent.

With the euro hitting a fresh high of more than $1.59 against the dollar and also setting a new record against sterling, Mr Trichet’s comments will be scrutinised for any signs of increased ECB unease ahead of this weekend’s meeting of G7 finance ministers and central bank governors in Washington.

So far the ECB has taken a relatively optimistic view on the eurozone’s economic outlook, arguing that there is little sign of the credit squeeze hitting economic activity. Its stance was supported ahead of its governing council meeting by French industrial production data showing output rose for the third consecutive month in February, which highlighted the resilience of the eurozone’s second largest economy.

But the International Monetary Fund has become noticeably gloomier this week about the eurozone The IMF said it expected eurozone growth would be only 1.4 per cent this year and 1.2 per cent in 2009 – significantly lower than projected by the ECB last month.

Inflation Fears Keep ECB Rates on Hold