ECB Holds Main Interest Rate Steady at 3.25%

Most expect the central bank to let the previous hike sink in first before upping rates again.
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BERLIN -- The

European Central Bank

kept its main refinancing rate at 3.25% as expected Thursday, during the 17-member Governing Council's normally uneventful second meeting of the month in Frankfurt.

Europe's monetary authorities have yet to make any changes to monetary policy when there is no regularly scheduled press conference, lest they rile the markets and unnecessarily shake the credibility of the fledgling ECB. Moreover, most central-bank watchers expected the ECB to let the quarter-point hike from two weeks ago sink in before it ratchets rates higher later this year.

Unfortunately for those who get queasy at the thought of higher interest rates, it appears clear that ECB President

Wim Duisenberg

and his cohorts will have little choice but to increase rates in the coming months, as Europe's economy continues to show signs of picking up.

When that next increase in borrowing costs will happen is less certain, however, as the most recent hike, which was smaller and sooner than expected, signaled the ECB may be edging toward taking a more activist role in setting monetary policy for the 11 countries participating in the euro.

Thursday morning's data from Germany -- which makes up a third of the entire euro-area economy -- increased the likelihood of a sooner-rather-than-later rate hike, as business sentiment reached its highest level since September 1997. Big laggard economies such as Germany and Italy have held the ECB back from clamping down on a liquidity situation it has repeatedly called "rather generous." However, now that both countries appear to have found their legs, the central bankers can be more sympathetic to smaller eurozone economies that have been roaring ahead.

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