The European Central Bank (ECB) Governing Council decided yesterday to leave its main interest rates unchanged, as evidence emerged that the German economy weakened towards the end of 2005. But analysts speculate that the ECB could raise interest rates as early as next March.

Rates of interest applying to the ECB's deposit, refinancing and lending facilities were left unchanged at 1.25, 2.25 and 3.25 per cent, respectively. In December the ECB increased interest rates by a quarter of 1 per cent, the first such increase in five years. A press statement by ECB president Jean Claude Trichet suggests that the ECB wishes to monitor the strength of the euro-zone economy before raising rates any further.

"Recent economic indicators and survey data support the view that the expansion of economic activity broadly maintained its momentum in the fourth quarter of 2005 and will continue to do so in the first months of 2006, notwithstanding the impact of high oil prices," said Mr Trichet.

In contrast with an earlier statement where he said price developments would be monitored "closely", Mr Trichet yesterday said that the ECB would monitor price developments "very closely", implying a heightened level of vigilance.

The ECB's hand may have been stayed so far by growth in the German economy - almost one third of the euro-zone's economy - which was flat in the last quarter of 2005. Many analysts are confident that rate increases will occur once recovery in the the overall economy of the euro zone is confirmed. "None but the naive are taking at face value the ECB line that the December hike was not one of a series, so the focus will be on whether Trichet's statement shows signs of hawkishness," said Eunan King, economist with NCB.

However, Mr King said that the need to build consensus on the ECB Council would prevent any rate increase occurring before March. The Bank of England also decided yesterday to leave its key policy rate unchanged.