The European Central Bank balancing growth against inflation held its key interest rate steady at 3.5% Thursday but is expected to keep a close eye on prices and economic momentum ahead of a possible increase in March.
Earlier in the day, the Bank of England raised its main rate by 0.25 to 5.25%, as inflation is running well above its 2% target at 2.7% and set to rise further. In the euro zone, inflation is expected to rise above 2% early this year and the 13 nations that use the currency are still showing solid economic growth Consumer and business sentiment surveys are positive, unemployment in the euro zone is down to less than 8% and data for the fourth quarter is expected to reveal more growth. And while fears about a U.S. slowdown are on the rise, ECB President Jean-Claude Trichet seemed confident that the euro zone, which expanded to 13 nations with the addition of Slovenia, will weather any rough patch. The recovery in the euro zone has been broadly sustained, with demand for credit still strong in the area that has more than 316 million people and a combined gross domestic product that accounts for more than 15% of the world's economy. Analysts expect the rate to remain unchanged until the ECB meeting next March 8 when a hike to 3.75% is forecasted. Apparently the ECB wants time to get a better picture of how the January first increase in German value-added tax from 16 to 19% has affected the euro-zone economy, as well as see fourth-quarter gross domestic product data