European Central Bank Holds Rates Steady

BERLIN -- As expected, the

European Central Bank

held its interest rates steady on Thursday, signaling Europe's monetary authorities believe there is little risk of inflationary pressures at the moment.

The ECB will continue to hold its refinancing operations as a variable rate tender with a minimum bid rate of 4.25%. The bank's Governing Council is expected to keep rates steady over the near-term, after hiking euro area borrowing costs by half a percentage point in June. After the bank's inaction, the euro was higher at $0.9560.

According to ECB President

Wim Duisenberg

, the bigger-than-expected move last month was supposed to "clear the horizon" and quell market expectations of further imminent rate increases. However, after the summer doldrums roll by, most observers anticipate the ECB will ratchet interest rates higher to keep the region's rebounding economy from overheating.

"The euro-zone economy is currently enjoying its strongest period of economic growth for over a decade

and unlike the U.S. in the late 1990s, Europe doesn't have the benefit of spare global capacity or a strong currency" to help stave off inflation, writes economist Chris Iggo in a report for

Barclays Capital

in London. Iggo predicts the ECB will raise its main refinancing rate to 4.75% by year's end and to 5.5% by the middle of 2001.

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