The ECB held interest rates steady today at 50-year lows of 2 per cent.
That decision was expected by financial markets, which foresee no move until next year once Mr Jean-Claude Trichet is in chargeOutgoing ECB President Wim Duisenberg gave a cautiously upbeat assessment of the world's second-largest economy, saying prospects for a gradual rebound are good with no need for cheaper credit.
"The latest data and information are consistent with a moderate pickup in recovery in the second half. In particular, there are signs that economic activity might have firmed somewhat," Mr Duisenberg said in his statement explaining the ECB's decision to hold rates steady for the fourth straight month.
For the short term, he said risks are balanced - the central bank's way of saying that no rate cuts are on the table for the next few months.
Bank of France Governor Trichet, who takes over the ECB presidency on November 1st, will have the task of helping to get a stubbornly weak European economy back on its feet without risking price stability.
Financial markets, which were unanimous in expecting no move, were little affected by the decision.
"In our opinion, it is too soon to cast aside the downside risks," said Mr Nick Matthews, euro zone economist at Barclays Capital.
The euro's rise toward its record highs put chances of a rate cut next spring back on the agenda, he said, although markets are pricing in a rate increase later in 2004.
In a Reuters poll, 40 ECB watchers agreed that euro zone rates have reached a floor, but 25 still expect another rate cut by early 2004 to keep recovery on track.
Too much is in upheaval in the European Union landscape for the traditionally cautious central bank to shift course now.
The euro's strength is raising questions about the sustainability of recovery. Fiscal policy is in flux as France and Germany proceed with tax cuts while trying to fend off EU sanctions and wrestle their budget deficits below the EU's cap, set at 3 per cent of GDP.