The European Central Bank kept its benchmark interest rate at 4 per cent today, in line with market expectations.
ECB President Jean-Claude Trichet signalled at the start of August that another rate increase was likely. But a sharp tightening in euro money market conditions since the ECB 's last meeting on August 2nd had convinced analysts that it would postpone the rise.
|
| ECB president Jean-Claude Trichet |
Reacting to the move this afternoon, Taoiseach Bertie Ahern said that while this year's budget would not see a 'big giveaway' that he was "happy that in a difficult year internationally that the [Irish] economy was doing well."
The ECB also held its marginal lending rate, at which banks can get emergency overnight loans, steady at 5.00 per cent and maintained its deposit rate at 3.00 per cent.
Some money market traders had speculated that the ECB might cut its marginal rate, following the US Fed's example, to put a cap on interbank lending rates, which surged past 4.5 per cent yesterday.
The Bank of England kept also official interest rates steady at 5.75 per cent for a second month running today.
The focus is now on Mr Trichet's news conference later today, when economists hope to learn more about the ECB's view of how the US subprime mortgage crisis is affecting Europe's economy and money markets.
Economists still expect the ECB to raise rates later this year because of underlying economic strength in the euro zone and inflation pressure, unlike the United States where the Federal Reserve is expected to cut rates at next meeting on September 18th.
Economists said that if Mr Trichet repeats his August reference to "strong vigilance" on inflation, that would signal the ECB is still keen to raise interest rates as soon as market conditions allow. Weaker phrasing would suggest a more circumspect approach to future rate tightening.