European Central Bank retains interest rate at 4%

European Central Bank retains interest rate at 4%
LONDON: The European Central Bank Thursday decided to leave its benchmark interest rate at 4 per cent. However, the central bank, which sets rates for 13 countries in the European Union that use Euro as the currency, hinted the rates could go up as some European countries have been witnessing continued growth.

The rates have doubled in the past 19 months as the bank responded to a strong economic growth and a declining unemployment rate, especially in countries like Germany.

The bank's officials say they expect the region's economy to grow at around a 2.6 per cent clip in 2007. The unemployment in the region has fallen to 7 per cent in May from 8 per cent in 2006.

The central bank's president Jean-Claude Trichet said the interest rates in the bloc are still low enough to aid economic growth. Analysts described the contention as an indication that the rates could be revised upwards when occasion arose. He said at a press conference in Frankfurt after the meeting of the governing council of the bank, "Our monetary policy is still on the accommodative side, with overall financing conditions favorable. Looking ahead, acting in a firm and timely manner to ensure price stability in the medium run remains warranted.''

He also said he is concerned about inflation, which according to a recent estimate was 1.9 per cent in June. He said the risks are on the upside.
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The decision did not have any major impact on the euro. Futures on 10-year German bonds were down, raising yields to 4.645 per cent.