The European Central Bank held its key interest rates steady today as expected. This comes just a day after the US Federal Reserve cut a half point off its key rates to boost the slumping US economy.
Following the regular fortnightly meeting of its policy-making governing council, the ECB kept the minimum bid rate for its regular refinancing operations at 4.75 per cent.
It also left unchanged its other two rates - the deposit rate at 3.75 per cent and the marginal lending rate at 5.75 per cent.
Since no-one had been expecting any changes in euro-zone interest rates just yet, the euro remained stable, changing hands at about 0.9420 dollars after the ECB decision -compared with 0.9425 dollars shortly beforehand.
ECB President Wim Duisenberg was scheduled to hold a news conference later in the day to explain the thinking behind the bank's decision.
The US rate cut yesterday was the second half-point cut in a month and signalled the Fed's concern about the emerging slowdown in the world's powerhouse economy.
By contrast, the guardians of the euro argue that growth in the 12-country euro zone is robust. Since inflationary risks persist in the European economy, the ECB looks unlikely to cut borrowing costs yet, economists argue.
Euro-zone inflation, as measured by the harmonised index of consumer prices (HICP), stood at 2.6 per cent in December, well above the 2.0-per cent deemed tolerable by the ECB.
Most analysts are therefore not expecting the ECB to ease monetary conditions until the end of the first quarter at the earliest and probably not until the second quarter.
Nevertheless, the ECB cannot ignore the clear signals from the US rate cut or the implications of a bumpy landing in the US economy.
An increasing number of voices are calling for the European bank to follow the Fed's lead in order to avert any serious fallout for the euro area from the US slowdown.
AFP