Euro rates on hold

Wim Duisenberg says economic prospects are very favourable

The European Central Bank (ECB) has left interest rates unchanged at its council meeting in Madrid.

The ECB said in a statement that its main refinancing rate would remain at 3.5%.

However, the bank warned that it would remain vigilant on inflation amid strong economic growth in the eurozone and an undervalued euro currency.

The bank's president, Wim Duisenberg, said: "We shall...continue to be vigilant in order to be in a position to counter inflationary pressure if needed in a timely manner."

Mr Duisenberg said the euro, which has lost around 20% of its value since its launch in January 1999, was undervalued and had to be carefully monitored.

"The present level of the euro in the mind of the council does not reflect the recent improvements in the economic outlook for the euro area," he said.

The comments failed to boost the currency, which was trading slightly lower shortly at $0.9540 after they were made.

He also said that the prospects for strong economic growth in the 11-country euro area were "more favourable than they have been for many, many years."

The latest forecasts put expected growth in the euro area at "slightly more than 3%" both this year and in 2001, he added.

Rises 'in the pipeline'

Economists had expected no change at this week's meeting which came just two weeks after the ECB raised interest rates by a quarter point.

However, most analysts expect the bank to raise interest rates in April or May in response to accelerating economic growth.

Ebbing inflation, stable exchange rates and moderate wage contracts are thought to be quelling pressure for a rise for now, but there is still concern about the low value of the euro.

The meeting in Spain was the first time the 17-member governing board of the Frankfurt-based bank has gathered outside Germany for one of its regular sessions.

The next time it holds a meeting outside Frankfurt will be in Paris on 19 October.