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Last Updated: Thursday, 4 August 2005, 13:07 GMT 14:07 UK
Eurozone rates kept on hold at 2%
Euro notes
Rates in the eurozone have stayed at 2% for more than two years
Interest rates in the 12 eurozone countries have been held at 2% by the European Central Bank (ECB).

The widely expected decision came less than an hour after the Bank of England cut UK rates by 0.25% to 4.5%, its first reduction in more than a year.

Although the eurozone is suffering low growth - with many of its largest economies faltering - the ECB has been mindful of keeping inflation in check.

It has kept rates unchanged at 2% for more than two years.

Confidence rising

The euro declined in value in recent months on speculation that the ECB may opt to cut rates, even though they are already at historic lows.

Following the ECB announcement, the euro traded slightly weaker at $1.2320 against the dollar.

I would expect the ECB's stance to have slightly hardened given better business confidence
Julian Callow, Barclays Capital

Some commentators believe that rates may still come down before the end of the year but recent economic indicators have proved more robust, making a cut less likely.

Both the service and manufacturing sectors strengthened last month.

"I would expect the ECB's stance to have slightly hardened given better business confidence and further signs of increasing money and credit growth," Julian Callow, Barclays Capital's head of European economies, told Reuters.

Low growth

Many of Europe's largest economies - including France, Germany and Italy - are underperforming, saddled with low productivity and high unemployment.

The eurozone is forecast to see growth of just 1.2% this year, down from 1.7% in 2004.

The International Monetary Fund recently reduced its own 2005 growth forecast for the single currency bloc from 1.6% to 1.3%.




SEE ALSO:
Bank cuts interest rates to 4.5%
04 Aug 05 |  Business
IMF cuts eurozone growth forecast
03 Aug 05 |  Business
Euro weakens on rate cut rumours
24 Jun 05 |  Business


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