ECB Holds Interest Rates Steady at 2.5% - TheStreet

ECB Holds Interest Rates Steady at 2.5%

But many market watchers will stay tuned to the Nov. 4 meeting, as the Bundesbank president may be reconsidering his reluctance to hike rates.
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FRANKFURT -- The

European Central Bank

held interest rates steady as expected Thursday, keeping its main refinancing rate, the equivalent of the

fed funds rate

, at 2.5%.

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Such inaction is not anticipated to last for much longer, however. Europe's continuing economic recovery has led the ECB to adopt an unofficial tightening bias, and the tone of some bank officials, such as President

Wim Duisenberg

, has become increasingly hawkish over the past few weeks.

Although the ECB's

Governing Council

meets to discuss eurozone monetary policy twice a month, Duisenberg only briefs the press after the first meeting of the month. That has led many observers to believe the still-somewhat green central bank will choose to raise rates on a day when a routine press conference is to be held.

That means market participants will go into full rate-watch alert for the Governing Council's next meeting Nov. 4 and depend on comments from key ECB council members in the meantime.

Bundesbank

President

Ernst Welteke

is thought to have been one of the main proponents for steady rates at the most recent meeting, even as Duisenberg and others wanted to bring the hammer down on inflationary pressures. Over past few days, Welteke has signaled a change in his speeches, acknowledging economic data have begun to swing in favor of the upside.

Since Germany makes up more than a third of the entire eurozone economy, the Bundesbank chief's eventual predilection toward higher rates will be indispensable for Duisenberg and the other hawkish council members wishing for a hike.

Despite Duisenberg's recent rumblings about the generous liquidity situation in Europe, the ECB said Thursday that it would allot 25 billion euros instead of 15 billion euros at each of its longer-term refinancing operations on Oct. 28, Nov. 15 and Dec. 23 in order to smooth any problems going into 2000.

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