The European Central Bank confirmed its cautious stance on interest rates today as it cited risks to subdued euro zone growth but stoped short of declaring an all-clear on inflation.
The bank repeated the euro zone economic recovery would be slower than earlier expected. It singled out sharp share market falls that hit consumer and investor confidence as a key factor that heightened the uncertainty about the pace of the economic upturn.
The bank said financial and labour markets uncertainty and global economic imbalances were the main risks to euro area growth and needed to be monitored closely - a central banking stock phrase suggesting a readiness for action should conditions deteriorate.
The ECB has kept its benchmark rate unchanged at 3.25 per cent since last November, and ECB President Mr Wim Duisenberg said last week the bank's policy stance remained "completely neutral".
But the worsened euro zone and global growth outlook convinced financial markets an interest rate cut later this year was in store.