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Last Updated: Thursday, 6 October 2005, 13:35 GMT 14:35 UK
ECB keeps interest rates on hold
Euro notes
Eurozone rates have stayed unchanged despite low growth
The European Central Bank (ECB) has decided to keep eurozone interest rates on hold at 2%.

The move, widely expected by analysts, means the ECB has now kept rates at the same level since June 2003.

The Frankfurt-based bank's balancing act on interest rates has it facing calls for both a rise and a cut.

While weak economies across Europe could benefit from cheaper borrowing rates, the bank remains concerned at inflationary pressures.

'Strong vigilance'

At a news conference in Athens, where the announcement was made, ECB President Jean-Claude Trichet acknowledged that recent oil price increases had pushed headline inflation above the bank's 2% target.

ECB President Jean-Claude Trichet
ECB President Jean-Claude Trichet says rates are at the right level

The main measure of inflation in the eurozone reached 2.5% in September.

Mr Trichet said "strong vigilance" was needed to ensure that this did not translate into higher inflationary pressures.

However, he said there was still "no clear evidence" that such long-term pressures were building, while oil price rises could prove to be "only temporary".

He added: "Despite renewed upward pressure on prices stemming mainly from oil market developments, we have concluded that our monetary policy stance still remains appropriate."

Weaker growth

Other conflicting indicators include private-sector credit and loans for house purchase, which are expanding amid fears of a property bubble in the single currency area.

But higher oil prices are also slowing growth in the 12 nations using the euro.

The European Commission's latest quarterly report, issued on Thursday, said weaker growth than expected in the first half of the year had pushed its 2005 growth forecast for the area down from 1.6% to 1.2%.

Eurozone growth in 2004 was 2.1%.

However, Mr Trichet remained optimistic on growth, saying: "Recent surveys, on balance, support the view that economic growth could gradually pick up from the second half of this year onwards."

Consumer confidence remains fragile, while unemployment in France and Germany is stubbornly high.

Adding to Germany's woes, the country is politically rudderless since last month's inconclusive elections, which failed to give a clear mandate to either of the two main parties.


SEE ALSO:
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