The European Central Bank (ECB) held interest rates steady as expected today for the 17th month in a row amid uncertainty how resilient the euro zone economy will prove to a strong currency and high oil prices.
This buys the ECB more time to gauge whether the 55 per cent surge in crude oil prices this year is driving up underlying inflation or whether euro zone recovery is running into strong headwinds that should hold inflation in check.
ECB President Mr Jean-Claude Trichet will hold a news conference this afternoon to explain the Governing Council's decision to keep its official rate at 2 per cent.
Separately, the Bank of England also left its key rate unchanged on Thursday at 4.75 per cent.
For the 12-nation euro zone, rates this low are extremely stimulative. The economy is expanding at roughly a 2 per cent annual rate with inflation at 2.5 per cent in October, which means that short-term money is basically free.
Given so much cheap cash, analysts said they will listen closely for any heightened ECB concern over inflationary risks.
But the ECB's rhetoric last month of "strong vigilance" may moderate somewhat in the face of euro strength, since this offsets some of the inflation pain for imported goods, notably oil.
But Deutsche Bank calculates that if the euro's 3 per cent rise over the past few months is sustained, it will damage exports enough to shave 0.5 per cent off euro zone growth in the coming year, throwing doubts over the robustness of the recovery.
That would be unwelcome for an economy that remains too weak to reduce 9 per cent unemployment or revive lacklustre consumer spending.
In the euro zone's largest economy, Germany, joblessness rose to a six-year high last month and a weak manufacturing report in October showed the labour market outlook was worsening.