ECB keeps interest rate at 4%

The European Central Bank (ECB) held interest rates at 4 per cent as expected this afternoon.

The European Central Bank (ECB) held interest rates at 4 per cent as expected this afternoon.

The markets' focus will now be on ECB President Jean-Claude Trichet's news conference, when he will detail the bank's assessment of the euro zone economy and deliver its first forecast for growth and inflation for 2009.

Economists expect Mr Trichet to retain a hawkish stance, stressing the bank's commitment to keeping the public's inflation expectations under control, after the headline rate hit a six-year high of 3 per cent last month.

The ECB had steadily raised interest rates from a low of 2 per cent in December 2005, reaching the current 4 per cent in June this year. However, a crunch on credit markets caused by the US subprime mortgage crisis forced it to put further moves on hold during the summer.

There are growing signs that the financial market turbulence will hit economic growth both globally and closer to home in the euro zone, forcing central banks to respond.

The Bank of England cut UK interest rates by a quarter percentage point to 5.5 per cent earlier today following a series of gloomy British economic data.

The Bank of Canada surprised markets with a quarter point cut yesterday, and economists expect the Federal Reserve to lower US rates again on December 11th.

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