Unlike Fed, ECB Leaves Rates Unchanged

As expected, the European Central Bank kept interest rates at 2.5%.
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Unlike the

Federal Reserve

on

Wednesday, the

European Central Bank

decided to leave interest rates unchanged after Thursday's meeting of the bank's 17-member Governing Council. The ECB left the equivalent of the fed funds target at 2.5% for another two weeks.

While the inaction was widely expected, the ECB did not hold its regular press conference to explain its decision, instead opting to hold one after the next council meeting on July 15. That will be ECB President

Wim Duisenberg's

only opportunity to discuss the council's monetary policy decisions prior to the bank's summer recess, which ends on Aug. 26.

In contrast to the Federal Reserve, which Wednesday hiked borrowing costs by 25 basis points to 5%, the ECB has made it fairly clear that the eurozone's interest rates are going to stay put for the time being. That much of the Continent shuts down in the summer months of July and August only increases the likelihood Europe's central bankers will wait to assess how things look in September before even considering moving rates one way or another.

One country which will certainly be on council members' minds come autumn, whether or not they spent their August holiday on the Isle of Capri, will be Italy. On Wednesday, officials in Rome released plans to cut 11.5 trillion lire ($6.1 billion) from the 2000 budget, less than the 16 trillion that had been expected, but enabling the country to meet its euro-related budget deficit target of 1.5% of gross domestic product.

When Italy said a month ago it would not meet its budget deficit target this year, the news raised the hackles of the ECB and sent the euro plunging against the dollar. When Italy fleshes out its budget proposal in September, Europe's central bankers are sure to give it more than a passing interest.

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