ECB expected to keep interest rates on hold

The European Central Bank is unlikely to raise interest rates today given the ambiguous signals about Europe's economic recovery…

The European Central Bank is unlikely to raise interest rates today given the ambiguous signals about Europe's economic recovery.

The euro zone's official interest rates have been at a historic low of 2 per cent since June 2003, and ECB policymakers are concerned that this loose monetary policy is spurring credit and money supply growth, raising inflation risks down the road.

But euro zone economic growth is still fragile, and a premature rate increase could derail shaky business and consumer confidence.

International Monetary Fund managing director Rodrigo Rato said in Washington yesterday that inflation was not a problem in the euro zone and that the ECB did not need to raise rates.

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He added that the euro zone's sluggish economic growth was a result of poor confidence and insufficient labour market reforms, not over-tight monetary policy.

The interest rate announcement is due at 12:45pm and will be followed by a statement and news conference from ECB President Jean-Claude Trichet.

The Bank of England is also expected to keep official sterling interest rates on hold at 4.75 per cent when it announces its decision at noon.