European central banks hold rates steady

The European Central Bank and Bank of England left their benchmark interest rates unchanged on Thursday — and the ECB president suggested the bank was unlikely to cut rates anytime soon.

The ECB's refinancing rate remained unchanged at 4 percent, while the Bank of England left its key rate at 5.25 percent.

ECB president Jean-Claude Trichet said that the bank's governing council unanimously agreed that cutting rates was not an option despite the rising euro — which reached a record $1.5372 — slowing economic growth and concern about a U.S. recession. He said raising rates was also not an option despite record inflation.

Trichet disputed analyst contentions that a rate cut was likely in the coming months.

"We never underwrite market expectations," he said. "We always do what is necessary to do, what is in line with our mandate, and that is to deliver price stability in the medium term."

Trichet told reporters that the bank's current monetary policy "will contribute" to reining in inflation risks and supporting growth — a suggestion that no interest rate cuts are coming in the near term.

"The economic fundamentals of the euro area are sound. Incoming macroeconomic data point to moderating but ongoing real GDP growth," he said. "Yet the level of uncertainty resulting from the turmoil in financial markets remains high."

Trichet remphasized the bank's goal of fighting inflation as its top priority.

"We believe that the current monetary policy stance will contribute to achieving this objective," Trichet said.

Inflation in the countries that use the euro has been running at a record 3.2 percent since the start of the year.

In London, the Bank of England monetary policy committee decision was expected by most economists and followed a cut last month in an attempt to shore up Britain's slowing economy.

Economists expect further cuts in the coming months — but the Bank of England is also responsible for keeping inflation in check, and analysts said soaring food costs and energy prices were likely behind this month's decision.

"Current elevated inflation risks meant that it was too soon for the bank to be comfortable about cutting interest rates again despite serious concerns about the growth outlook," said Global Insight Chief U.K. economist Howard Archer.

Inflation is currently at 2.2 percent, already above the government's 2 percent target, and a rate cut to boost economic growth can also wind up increasing inflation.

Most economists expect the Bank of England to hold off until May before easing rates further, although an April move is not ruled out if there are signs of a more serious slowdown.

Ian McCafferty, the chief economic adviser at the Confederation of British Industry, Britain's leading employers' organization, said that holding rates showed the Bank was determined not to compromise on inflation, but added that another cut would be needed "sooner rather than later."

"The MPC is well aware of the intensifying short-term inflationary pressure and needs to balance this against the weakening of the economy we are experiencing," he said, using the acronym for the monetary policy committee.

On Tuesday, the Bank of Canada cut its key interest rate by half a percentage point to 3.5 percent on Tuesday and indicated further cuts would be needed as a response to a U.S. economy that will likely experience a deeper and more prolonged slowdown than previously projected.

Meanwhile, Australia's central bank raised its key interest rate to 7.25 percent the same day, its highest level in 12 years, to combat inflation.

___

AP Business Writer Jane Wardell reported from London.