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Thursday, 25 October, 2001, 14:59 GMT 15:59 UK
ECB leaves rates on hold
One hundred euro note
The markets had expected a cut this time
The European Central Bank has left interest rates unchanged at 3.75%, ignoring growing political pressure for cheaper borrowing costs in order to save the eurozone from a full-blown recession.

The ECB has cut rates only three times this year, unlike the US Federal Reserve which has made nine reductions to stimulate the economy there.

Analysts were evenly divided over whether rates would be cut or left on hold after recent weakness in the euro and falls in eurozone inflation.

"The ECB probably believes that there is insufficient data in the light of the September events to have moved just yet ... there may be a chance of one perhaps at the next meeting," said Kelly Tonkin of Lehman Brothers.

The ECB meets again on 8 November.

News of the ECB's decision pushed the euro below the psychologically important $0.89 mark for the first time in two weeks, but the single currency's losses were more than offset later on Thursday by gloomy US unemployment and consumption figures.

Pressure off

EU leaders dropped a call for "further decisive action" after meeting with ECB president Wim Duisenberg in Belgium on Friday.

Their final statement said only that "a further improvement in inflation prospects would provide room for manoeuvre for monetary policy".

Mr Duisenberg added that the bank was ready to act if eurozone inflation dropped below the ECB's 2% target before early next year.

Interest-rate cuts stimulate the economy by making it cheaper to borrow, but can also fuel inflation.

Annual inflation in the 12 countries using the euro currency fell to 2.5% in September from 2.7%.

Bad German news

Germany last week provided two further pieces of depressing economic news that increased calls for rate cuts.

Finance minister Hans Eichel said Europe's biggest economy would expand by only 0.75% this year, and rebound only slightly in 2002.

Meanwhile, a closely watched survey showed business sentiment in September suffering its biggest drop in 28 years.

The ECB dropped its rate by a half percentage point on 17 September in unison with the Fed, to restore confidence after the attacks in the US.

See also:

24 Oct 01 | Business
Fed sees US economy struggling
23 Oct 01 | Business
Germany 'on the brink of recession'
23 Oct 01 | Business
French shoppers resilient
19 Oct 01 | Business
Euro drops as confidence collapses
19 Oct 01 | Business
Rate cut row mars summit
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