MercoPress. South Atlantic News Agency

Euro-zone rates unchanged in spite of inflation pressure

The European Central Bank left on Thursday interest rates unchanged at 4%, in line with analysts' expectations and in spite of strong short term upward pressure on inflation.

Euro-zone inflation has risen in recent months, pressuring ECB to keep rates at current levels, despite slow growth and global market turbulence. Official data showed that inflation in the 13-nation Euro-zone hit 3% in November year-on-year, marking its highest level in more than six years. Fear of rising inflation pressured the bank to keep rates steady. "The period of comparatively high rates of inflation will be somewhat more protracted than previously expected" European Central Bank president Jean-Claude Trichet said at the press conference following the announcement. Finance ministers in the Euro-zone have voiced their concern about the Euro's strength, which is supported by comparatively high European rates. German finance minister Peer Steinbrueck has expressed his worries about the currency's strength, which makes European exports expensive to consumers outside the Euro-zone. And Italy's deputy economy minister Vicenzo Visco said it would be "suicide" not to cut rates. Before the credit crunch hit global markets in the summer, the ECB had been expected to raise rates to 4.5% by the end of the year, but the consensus is now for them to remain unchanged until the end of the year. In its release the ECB said that against the background of upside risks to price stability over the medium term, and with money and credit growth remaining very vigorous in the Euro area, the bank's "Governing Council stands ready to counter upside risks to price stability". The economic fundamentals of the Euro area remain sound; however the reappraisal of risk in financial markets is still evolving and is accompanied by continued uncertainty about the potential impact on the real economy. "We will therefore monitor very closely all developments and by acting in a firm and timely manner on the basis of our assessment, we will ensure that second-round effects and risks to price stability over the medium term do not materialize". "Anchoring medium and long-term inflation expectations in line with price stability is all the more important at times of financial market volatility and increased uncertainty" underlines the release promising to continue to pay great attention to developments over the coming weeks. On Thursday also interest rates in the UK were cut to 5.5% from 5.75%. The US Federal Reserve is expected to cut interest rates next week.