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Eurozone interest rates kept on hold at 1.25% by ECB ECB signals eurozone interest rates are set to rise
(about 1 hour later)
The European Central Bank (ECB) has kept interest rates in the eurozone unchanged at 1.25%. The European Central Bank (ECB) has signalled that it will raise interest rates next month, from 1.25%.
In April, the bank increased rates for the first time in almost two years. Earlier on Thursday, the ECB kept rates unchanged for the second month in a row, after increasing them in April for the first time in almost two years.
Most analysts expect the central bank to raise rates again in July to curb inflation in some of the eurozone's 17 member states. The central bank wants to raise rates again in July to curb inflation in some of the eurozone's 17 member states.
But it has to balance that against the need to leave rates low to encourage growth in countries such as Greece and Portugal. But it has to balance that against the need to leave rates low to boost growth in nations such as Greece and Portugal.
Investors will be watching ECB President Jean-Claude Trichet's press conference, which begins shortly, for updates about the European economy and confirmation of a further rate increase. In his press conference, ECB president Jean-Claude Trichet pledged to exert "strong vigilance" on inflation, a signal to the markets that rates will be raised at the next meeting.
Inflation in the eurozone was 2.7% in May. The ECB increased its forecast on inflation for 2011 to 2.6% from its previous prediction of 2.3%.
The bank also increased its economic growth forecast to 1.9% from 1.7%.
The European economy remains extremely fragile with many countries grappling with high unemployment, huge debts and government spending cuts.
'Last' move?
In May, the European Union approved a 78bn euro (£68bn; $110bn) bail-out for Portugal, which comes after the Irish Republic and Greece also had to be bailed out.
"If we are right in expecting growth to slow further in the coming months, both in the periphery and the core, then a July move may prove to be the last," said Jonathan Loynes, chief European economist at Capital Economics.
Markets have remained weak over fears that Greece's debts will still have to be restructured, a measure that the central bank opposes.
Forcing Greek investors to take losses on their debt would be considered a credit default by ratings agencies, meaning the ECB could not accept Greek bonds as collateral.
Mr Trichet reiterated that he opposed any restructurings of Greek debt that were not purely voluntary and created a "credit event".