The European Central Bank (ECB) left interest rates unchanged today as widely expected despite the argument that cheaper cash is needed to prevent a strong euro from hurting economic recovery.
The ECB said its governing council had decided to keep the euro zone's key rate at 2 per cent at its monthly monetary policy meeting.
The strong euro gives the ECB more breathing space, as it saps inflation by lowering import prices. Most analysts in a Reuters poll had said the ECB would stay put this month and that it would wait until the second half of 2004 to raise rates.
But calls are mounting for the ECB to lower borrowing costs. German Economy Minister Mr Wolfgang Clement said that euro strength is a problem for the euro zone economy and puts Germany's 2004 growth forecast at risk.
If the euro stays strong, the ECB may further delay tightening, or even consider lowering rates again, analysts say.
ECB President Mr Jean-Claude Trichet will hold a news conference due to start at 1:30 p.m. to explain the decision to leave the minimum bid rate at the ECB's weekly refinancing auctions unchanged at the 2 per cent record low.
Financial markets will be eager to hear what Mr Trichet says about the euro, which has gained some 5 per cent against the dollar since December, hitting new life highs above $1.28 this week.
So far, the ECB has declined to comment in detail on the rise, repeating its line that a strong and stable currency is in the interests of the euro zone.