The chances of a significant increase in interest rates have diminished after a meeting of the European Central Bank (ECB) Governing Council left key interest rates unchanged yesterday.

Following speculation about a February rate increase, ECB president Jean-Claude Trichet signalled that rates would rise no earlier than next March. Analysts reacted by saying one further quarter-point increase would certainly occur during 2007, but disagreed on the prospects for further increases.

Commenting on the present level of rates, Mr Trichet strongly hinted that further upward movement was possible.

"Our monetary policy continues to be accommodative, with the key ECB interest rates remaining at low levels, money and credit growth very strong, and liquidity in the euro area ample by all plausible measures. Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted," he said.

ECB's analysis, which underpins the latest decision, says that growth in the world economy remains robust and risks remain that annual euro-zone inflation will this year exceed the ECB's reference value of 2 per cent.

Mr Trichet added that recent rate rises, the latest of which came last December, had not damaged the euro-zone economy.

"Evidence from various confidence surveys and indicator-based estimates supports the assessment that robust economic growth has continued and that the situation in labour markets has improved further."

But analysts pointed to the tone of his remarks as signalling a softening in the bank's stance.

"The ECB played a straight bat and left rates unchanged, as expected. Expectations that Trichet would use the v-word, eg that they were in very vigilant mode, thereby signalling a hike in February, were disappointed," Ulster Bank chief economist Pat McArdle said yesterday. The chances of a further increase were "somewhat lower than formerly", he added.

"The ECB is giving itself more wriggle room. We are no longer on a mechanical path to higher interest rates," IIB economist Austin Hughes said yesterday, adding that recent falls in oil prices could help keep rates low.

"Mr Trichet said today that he expects inflation to hover around 2 per cent in 2007, which is in line with the ECB's December projection. However, recent developments in oil and other commodity prices imply inflation could be a little bit lower this year," he said.

A dissenting view was taken by AIB Global Treasury unit, which yesterday predicted that the ECB's main refinancing facility, which stands at 3.5 per cent, would rise to 4 per cent by the middle of this year. The unit's economists warned that rates could rise yet further.

"If euro area growth prospects remain strong heading into 2008, the ECB may see the need to move to a more restrictive stance. As a result, the 4 per cent level may not represent the peak," it stated.