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ECB set to hold euro rates at 4% Euro rates at 4% in summer pause
(about 5 hours later)
The European Central Bank (ECB) is expected to keep eurozone interest rates on hold at 4% following its latest meeting. The European Central Bank (ECB) has given the markets a reprieve by leaving eurozone interest rates on hold at 4% for the second month in a row.
The decision comes as stock markets fluctuate wildly amid fears that problems in the US mortgage sector will seep into the eurozone's economy. The move should alleviate some of the fears over the economic impact of the sharp rise in the cost of borrowing over the past two years.
However, analysts expect that the ECB will raise interest rates in September. The decision came after policy makers conducted the monthly meeting by telephone during their summer recess.
This month's meeting is being conducted by telephone and no news conference is planned to explain the latest decision. Economists still believe rates will rise further by the end of the year.
Inflation worries The Bank of England's rate-setting body also kept interest rates on the hold in the UK at their current level of 5.75%.
The UK's Bank of England is also expected to pause for breath on Thursday and keep interest rates on hold at 5.75% so as not too spook fragile financial markets and excessively curb consumer spending and business sentiment. The pause in rate rises in both economies should be a relief to homeowners, consumers and businesses feeling the squeeze from the higher cost of borrowing.
But keeping inflation under control is still a worry for the central banks. But it is believed that both central banks still regard inflation as a threat and the need to keep it under control could see eurozone rates rise at least once before before the end of the year.
Howard Archer, chief UK and European economist at Global Insight, is one analyst forecasting that the ECB, still upbeat about growth prospects in the bloc, will raise interest rates to 4.25% in the next few months. ECB President Jean-Claude Trichet has scheduled an unexpected news conference to discuss the decision.
"The current financial market turmoil will not deter the ECB from acting in September, although if it deepens, it would increase the possibility that the ECB could hold fire until October," he said.