MercoPress. South Atlantic News Agency

Euro interest rate on hold but hints of cut next time

The European Central Bank left interest rates unchanged at 4.25%, resisting pressure for a rate cut. However ECB president Jean Claude Trichet said that a quarter point interest rate cut had been considered, but there had been a unanimous vote against it.

"We discussed extensively the recent intensification of the financial market turmoil and its possible impact on economic activity and inflation, recognizing the extraordinary high level of uncertainty stemming from the latest developments," he said. Trichet added that the risk to economic growth had increased and that economic activity was weakening. He underlined that the effects of the banking crisis had yet to feed through into economic data but he also pointed out that it was important for the ECB to keep inflationary expectations down. "With the weakening of demand, upside risks to price stability have diminished somewhat but they have not disappeared" he said. Higher interest rates can help fight inflation but they can also make it harder for businesses to borrow and expand, with growth slowing as a result. Eurozone inflation fell to 3.6% in September, but it is still well above the 2% target. Nevertheless the concern and Trichet's frank comments left analysts convinced that the bank will have to make a move soon. Last week, Ireland became the Eurozone first economy to be formally in recession. France, Germany and Britain are on the verge of joining Ireland and unemployment in Spain has soared to its highest in eleven years. There is growing concern that the problems facing Europe's banks could send other economies into recession. "In the past four days, the governments of no less than seven European countries were required to nationalize banks or guarantee the deposits of large cross-border institutions" US economics professor Nouriel Roubini said on Wednesday. The ECB instead of cutting rates has been lending billions of Euros to its struggling banks in an attempt to ease the credit crisis.