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Thursday, 7 November, 2002, 12:46 GMT
Europe leaves rates unchanged
European flags
The ECB is traditionally resistant to outside pressures
The European Central Bank (ECB) has left its main interest rate steady at 3.25%, despite intense pressure for a cut that could spark an economic recovery.

The ECB has resolutely left rates unchanged for a year, mainly because it remains concerned that European inflation could reignite.

Wednesday's hefty rate cut by the US Federal Reserve did not persuade the ECB governing committee to budge.

But many analysts predict that the ECB will reduce its rates eventually, although possibly not until early in the New Year.

The European economy has performed sluggishly, and the Fed cut has now opened up a yawning two-percentage-point gap between US and ECB rates.

Independence

The ECB has proved remarkably resistant to outside pressure in the past couple of years, and is especially reluctant to be seen engaging in knee-jerk reactions to outside stimuli.

ECB president Wim Duisenberg describes risks to eurozone price stability as balanced, and bank-watchers detect no change in his hard line tone.

Other senior monetary policy makers, including Bundesbank president Ernst Welteke, have suggested there is no reason to cut rates.

The Bank of England's monetary policy committee (MPC) has left UK interest rates on hold at 4%, despite growing pressure for a cut.

Inflation watch

The main reason why calls for a rate cut have been mounting is the worsening European economic outlook.

Forecasts for eurozone growth are already being scaled back, with the consensus now at less than 2% next year.

At the same time, higher oil prices, the slowing US economy and the fall-out from the recent dismal stock market performance are all still likely to have an impact.

Weak growth might translate into dampened inflation - the key factor that could persuade the ECB to eventually reduce its rates.

For the moment, eurozone inflation remains above the 2% upper limit of the ECB's definition of price stability, its overriding goal.

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 ON THIS STORY
The BBC's Davis Peers
"The European Central Bank is mandated to fight inflation first and foremost"
See also:

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