The European Central Bank (ECB) resisted growing pressure and left interest rates unchanged after the meeting of the bank's governing council in Frankfurt yesterday.
ECB president Mr Wim Duisenberg said that, after assessing the two pillars of monetary policy strategy, the council decided to leave its benchmark minimum lending rate unchanged at 4.75 per cent because euro-zone growth was still solid.
He said an interest rate cut was not justified because long-term growth was still above its long-term potential, even if growth forecasts might have to be revised downwards.
"The external environment is less favourable than it was up to autumn 2000 but there are no indications of a risk of a global recession," said Mr Duisenberg.
The other deciding factor in the decision was an expected fall in euro zone inflation in the coming months.
"I hope Ireland and the Netherlands will contribute to getting the euro area inflation down to below 2 per cent by the end of the year," added Mr Duisenberg.
Consumer price inflation in the euro zone is running at 2.6 per cent, significantly above the ECB's 2 per cent target.
The decision to leave rates unchanged came as a surprise to a majority of economists who had forecast at least a quarter-point rate cut.
Other central banks have cut rates in reaction to the global slowdown, but the ECB, which last cut interest rates two years ago, yesterday continued its wait-and-see policy.
"Nominal and real euro-zone interest rates are not high by historical standards. You will continue to wait and we will continue to see," Mr Duisenberg said in a lighter moment.
The 18-member ECB governing body had come under pressure in recent days to cut the minimum rate by a quarter or even a half of a percentage point.
Those voicing concern about slowing economic growth in the euro zone included the International Monetary Fund and Germany's Finance Minister, Mr Hans Eichel.
His call for a rate cut echoed a call for a half-point cut from a group of leading economic experts in Germany.
They forecast on Tuesday that growth this year in Europe's largest economy would be around 2.1 per cent - a sharp fall from their previous forecast of 2.7 per cent.
Mr Duisenberg said he remained unswayed by recent demands for a cut in interest rates. "I am a polite man - I listen but I do not hear," he said.
According to Mr Duisenberg, those who have called for a rate cut were overlooking the ECB's "primary goal" of safeguarding price stability.
He said that a vote of council members was not needed to reach yesterday's decision and said the governing council "continues to speak with one voice".
This was in reaction to the criticism that the ECB had been sending mixed messages in the last week, including hints that it realised a cut in rates was needed to stimulate economic activity.
The euro, which has weakened sharply in recent weeks, fell to around $0.8825 to the dollar after the ECB announcement.
Traders fear the decision will place further pressure on the single currency in the future.
Referring to the euro's "persistently hesitant performance", Mr Duisenberg called on eurozone governments to introduce market-oriented reforms of the labour market to lift the currency's production potential.
"It is also crucial to increase investment incentives in the euro area through structural policy measures such as deregulation, privatisation and tax reforms," he said.
