3 February 2005, 17:13  ECB leaves rates steady, sees growth picking up

The European Central Bank left interest rates unchanged on Thursday, saying euro zone economic growth should pick up this year and inflation was contained, although concerns remained for the medium term.
The decision leaves the benchmark interest rate at a record low of 2 percent for the 20th month in a row, as predicted by economists in a poll.
The ECB's Governing Council made the decision a day after the U.S. Federal Reserve raised its key interest rate by another quarter percentage point to 2.5 percent, its sixth rise since last June.
"Looking ahead, the conditions remain in place for economic growth to pick up and become more self-sustained in the course of the year," ECB President Jean-Claude Trichet told a news conference.
Analysts expect the ECB to lift rates to a more normal level to head off future inflation pressures once the economy proves it has recovered from a softer patch in the second half of 2004, probably in the second half of this year.
Services and manufacturing activity both picked up in January but the jury is still out on whether signs of renewed momentum will continue.
"While short-term ... inflation rates remain subject to certain volatilities, particularly in relation to oil prices, there is no significant evidence of underlying domestic inflationary pressures building up in the euro area," said Trichet.
"However medium-term upside risks to price stability persist and need to be monitored closely," he said. "It is important that higher inflation in the short-term does not become entrenched in long-term inflation expectations and wage and price setting behaviour."
After the decision the euro fell percent against the dollar with analysts blaming jittery markets before key events over the next 48 hours. "We have been getting exaggerated moves over the last few days," said Daragh Maher, currency strategist at Calyon.
The euro weakened to below $1.2960 from around $1.3015 before the rate decision, but markets were looking to U.S. jobs data on Friday and a G7 policymakers meeting this weekend as well as the ECB news conference.
Money supply accelerated to annual growth of 6.4 percent in December and raises the prospect of risks to the medium-term inflation outlook.
German inflation slowed to 1.6 percent in January from 2.1 percent in December, as a jump in health costs fell out of the consumer price index, prompting some analysts to trim predictions for euro zone inflation in 2005.
Inflation is expected to fall under the ECB's 2 percent benchmark for the first time in a full year since 1999.
Business and consumer confidence is also firming. A European Commission survey showed a recovery in euro zone economic sentiment in January and Germany's Ifo business index also rose, although French consumer confidence was stuck at a 12-month low.
But retail sales in Germany fell unexpectedly in December and labour markets remained shaky, as the country reported its highest unemployment since 1933 in January. The euro zone jobless rate also edged up to 8.9 percent in December.

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