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Eurozone interest rates maintained at 1% by ECB ECB head Trichet calls for additional spending cuts
(40 minutes later)
The European Central Bank (ECB) has kept interest rates on hold at a record low of 1% for the 20th month in a row, as was widely expected. The European Central Bank (ECB) has called on governments with high debt levels to introduce further measures to cut their budget deficits.
"Major reforms" were needed to bring down deficits, ECB president Jean-Claude Trichet, particularly to address "labour market rigidities".
Mr Trichet also said eurozone inflation may rise in the short term before falling towards the end of the year.
Earlier, the ECB kept interest rates on hold at 1%.
Rising prices
"Where necessary, additional corrective measures [to bring down deficits], preferably on the expenditure side, need to be swiftly defined and implemented," Mr Trichet said.
This was "crucial for enhancing productivity growth and laying the foundations for economic growth," he added.
Mr Trichet also said there was "evidence of short-term upward pressure on overall inflation, mainly owing to [rising] energy prices".
Inflation could "temporarily increase further", and is "likely to stay above 2% until falling back towards the end of the year," he added.
The bank's inflation target is to keep price rises below, but close, to 2%.
Mr Trichet said there was "positive underlying momentum" to the economic recovery, although "uncertainty remains elevated".
He said overall risks were tilted to the downside.
Negative risks included ongoing tensions in financial markets, rising oil and commodity prices, and a "disorderly" correction of global trade imbalances.
These could be offset by global trade increasing more rapidly than expected and strong business confidence, he added.
Bond auctions
Earlier on Thursday, the ECB kept interest rates on hold at a record low of 1% for the 20th month in a row, as had been widely expected.
The bank wants to keep rates low in order to boost the zone's fragile economic recovery.The bank wants to keep rates low in order to boost the zone's fragile economic recovery.
Earlier, the Bank of England also kept UK interest rates on hold at 0.5%. Also on Thursday, the Bank of England kept UK interest rates on hold at 0.5%.
Also on Thursday, Spain held a successful auction of government bonds, helping allay fears over the eurozone's ability to service its debts. In addition, Spain held a successful auction of government bonds, helping allay fears over the eurozone's ability to service its debts.
There was strong demand for the five-year bonds, which carried a yield of 4.54% - higher than the last auction but lower than some analysts had feared.There was strong demand for the five-year bonds, which carried a yield of 4.54% - higher than the last auction but lower than some analysts had feared.
The sale came a day after a similar auction by Portugal.The sale came a day after a similar auction by Portugal.
After the joint European Union and International Monetary Fund bail-outs of both Greece and the Irish Republic, there has been speculation that Portugal and Spain may also seek help. Since the joint European Union and International Monetary Fund bail-outs of both Greece and the Irish Republic, there has been speculation that Portugal and Spain may also seek help.
Both auctions have served to improve investor confidence in the two countries' ability to reduce their budget deficits to more sustainable levels. But both auctions have served to improve investor confidence in the two countries' ability to reduce their budget deficits to more sustainable levels.
The ECB and Bank of England's decisions not to raise interest rates are in contrast to their counterparts in Asia, many of which are seeing stronger economic recoveries and rising prices.The ECB and Bank of England's decisions not to raise interest rates are in contrast to their counterparts in Asia, many of which are seeing stronger economic recoveries and rising prices.
South Korea unexpectedly raised rates on Thursday for the second time in three months, while Thailand made a similar move on Wednesday.South Korea unexpectedly raised rates on Thursday for the second time in three months, while Thailand made a similar move on Wednesday.
Australia and India have also increased rates recently.Australia and India have also increased rates recently.