European Central Bank Holds Rates Steady

But the weak euro and Europe's rebounding economy make a future tightening likely.
Author:
Publish date:

BERLIN -- The

European Central Bank

held its interest rates steady on Wednesday as expected, signaling Europe's monetary authorities belief inflationary pressures remain checked for the moment.

The ECB will hold its next refinancing operations as a variable rate tender with a minimum bid rate of 4.25%. The bank's Governing Council met a day earlier than usual, as many European countries will celebrate the Corpus Christi holiday Thursday.

In a bigger-than-expected move two weeks

ago , the ECB raised rates by a half of a percentage point with the aim of pushing back the market's expectations for the next hike. After the ECB's inaction Wednesday the euro was lower at $0.947. While the euro has strengthened against the dollar in recently weeks, reducing the chance of importing inflation into the euro zone, the currency's extended weakness and Europe's rebounding economies have led most observers to expect a further tightening before the end of the year.

In recent testimony to the European Parliament's

Economic and Monetary Affairs Committee

, ECB President Wim Duisenberg reiterated statements made a fortnight ago that inflationary risks remain to the upside in the euro area. However, he said borrowing costs were likely to remain steady for "a considerable period."

How long Duisenberg will keep his power dry depends on the prospects for quicker growth in Germany, which makes up over a third of the euro-area economy. According to the latest survey of German business sentiment by the

Ifo

economic institute, the central bankers may be inclined to act sooner rather than later. Released Tuesday, the report showed German business confidence in May reached its highest level since March 1991.

The ECB sets monetary policy for Germany, France, Italy, Spain, Portugal, the Netherlands, Belgium, Finland, Luxembourg, Ireland and Austria.