The European Central Bank kept euro zone interest rates unchanged today as widely anticipated by financial markets, with a slow recovery in the 12-nation region posing little threat to inflation.
The strong euro helps tighten monetary conditions and control inflation by lowering oil and other import prices, giving the ECB leeway until at least the second half of 2004 before it starts raising its borrowing costs, analysts said.
"Interest rates at their current level are no barrier to euro zone economic growth," ECB Governing Council member Mr Klaus Liebscher from Austria said today.
"This is not a barrier for further potential growth, and it is also . . . not a barrier for potential investment," Mr Liebscher was quoted by Austria's Boersen-Kurierweekly as saying.
Some ECB Governing Council members are even ready to argue the economy needs a further rate cut, monetary and market sources have said - especially if the euro strengthens further from record highs this week, while recovery remains shaky.
The euro, already up some 15 per cent this year, hit new life highs above $1.21 yesterday, but lost ground after a newspaper reported the European Union was seeking to control currency levels, a story vehemently denied both by the European Commission and the German deputy finance minister.
However, financial markets - little changed after the decision - are unprepared for a rate cut, which likely would only be prompted by a major and rapid euro appreciation.