ECB leaves rates unchanged

Eurozone official interest rates were left unchanged on Thursday by the European Central Bank but its worries about the inflation outlook are likely to remain.

The decision by the ECB’s governing council, meeting in Frankfurt, to leave its main policy rate at 4 per cent was expected. The global credit squeeze last year forced the bank to shelve further rises in official borrowing costs, which have remained unchanged since June.

However, Jean-Claude Trichet, president, is likely to underline fears that the current “hump” in inflation – driven higher by fuel and food prices – could become longer lasting if it feeds through into higher wage settlements.

Mr Trichet has pledged that the ECB will act to avoid any such “second round” effects, and revealed after last month’s interest-rate setting meeting that some governing council members had voiced support for a pre-emptive rise in interest rates.

The ECB’s task has been complicated by the uncomfortable combination of high inflation rates and clear signs that growth is slowing. Eurozone inflation was at a six-year high of 3.1 per cent in December – compared with the ECB’s target range of an annual rate “below but close” to 2 per cent.

But French and Spanish industrial production data for November have added to the evidence that economic growth across the 15-country eurozone is slowing – if only steadily. French industrial production fell 1.5 per cent from the previous month – much more than expected. Spanish output fell by 0.6 per cent from a year earlier.

Thursday’s ECB governing council meeting was the first since the Mediterranean islands of Cyprus and Malta joined the eurozone on January 1.

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