MercoPress. South Atlantic News Agency

Euro Zone interest rates unchanged at 2%

A day after the US Federal Reserve raised the basic interest rate for the six time running to 2,5%, the European Central Bank left rates unchanged Thursday, with Bank President Jean-Claude Trichet saying recent economic indicators suggest a moderate recovery remains on track.

The widely expected decision by the bank's 18-member governing council left the European Central Bank's key refinancing rate at 2%. The rate has been unchanged for 20 straight months since a half-point cut in June 2003.

"All in all, the information which has become available since the last meeting of the Governing Council means that our assessment of price stability over the medium term is unchanged. While short-term HICP inflation rates remain subject to certain volatilities, particularly in relation to oil prices, there is no significant evidence of underlying domestic inflationary pressures building up in the euro area", indicated Mr. Trichet in his statement following the announcement from the Governing Council.

"Recent data on economic activity, as well as survey information, suggest ongoing moderate growth in the fourth quarter of 2004, and a broadly unchanged situation around the New Year" added Mr. Trichet.

"Looking ahead, the conditions remain in place for economic growth to pick up and become more self-sustained in the course of the year."

Some economic indicators have strengthened in recent days, including an upturn in the German Ifo Institute survey of business sentiment and a rise in the euro-zone purchasing managers index. The stronger the expectations of growth are, the closer a rate increase could be.

A euro that has risen sharply against the U.S. dollar has given the bank more time to wait by easing pressure on inflation. A stronger currency makes imports cheaper - particularly oil, which is priced in dollars.

Inflation ran at an annual 2.4% in December, above the bank's guideline of 2%, but the bank predicts the rate will fall to below 2% during the year, barring adverse shocks to the economy.