The European Central Bank left interest rates unchanged at 2 per cent as expected todayas inflation risks appear limited and the recovery path mixed in the 12-nation euro region.
Some doubts persist over the pace of euro zone growth, making the ECB more hesitant in tightening credit than the US Federal Reserve, which raised rates by a quarter of a percentage point yesterday, ending an era of very cheap money.
Weak consumer demand and a softening export sector caused the PMI manufacturing index to slow in June, data earlier today showed, underlining that the euro zone recovery is still finding its feet.
ECB President Mr Jean-Claude Trichet will hold a news conference at 1.30 p.m. to explain the decision to keep the minimum bid rate at its refinancing auctions unchanged at historic lows, even as other major central banks start tightening.
In recent months, Mr Trichet has shifted monetary policy to a neutral stance. But he appears to be readying markets for an eventual upward shift with a slightly more hawkish tone, saying he is "very, very vigilant".
Financial markets held steady on the ECB decision. The euro was trading at $1.2160 and the German Dax Xetra stock index was at 4,089.38, up 0.9 percent on the day.
All but one of 66 economists in a Reuters poll last week had said the ECB would leave its policy stance unchanged and only 17 see a rate increase this year. Financial markets likewise are not fully pricing in a rate hike before the end of 2004.
A jump in euro zone consumer price inflation to 2.4 percent in June and 2.5 percent in May is temporary, the ECB has said, indicating it is in no hurry to raise cash costs as it watches the economy gradually recovering.
While the gains are too high for the ECB's liking, the central bank expects inflation to come down to below its two-percent upper cap next year.