The European Central Bank (ECB) left its benchmark refinancing rate on hold at 4.00 per cent Thursday as expected, according to dpa. ECB President Jean-Claude Trichet said the bank would be "constantly alert" for inflationary risks, after eurozone inflation came in at 3.0 per cent in November, well above the ECB's target of 2.0 per cent. The inflation target remained the central "needle in our compass," the ECB president said. He predicted high rates of inflation would remain longer than previously expected, coming down to target only in 2009 after reaching 2.5 per cent on average next year. Trichet also made clear the bank was watching other issues. On the US subprime mortgage crisis, he said: "We are at an important level of uncertainty." Analysts predicted the bank would hold rates at the current level for some months to come. "We assume the ECB will retain rates at current levels. The rate for inflation does not allow for a cut in rates," Wolfgang Sawazki told German national broadcaster n-tv. He held out the possibility the ECB would move to raise rates some time next year to counter the growing threat of a surge in prices driven by energy costs. Other analysts, such as those at Germany's Commerzbank are talking about a fall in the key rate, perhaps at the end of next year. The central bank for the 13-member eurozone had come under conflicting pressures in the weeks ahead of the decision. Inflation in the largest eurozone economy, Germany, was as high as 3.3 per cent in November, using the Europe-wide harmonized prices index. But there are growing concerns that eurozone growth will slow dramatically next year from the annual figure of 2.7 per cent recorded in the third quarter this year. And retail sales fell as much as 0.7 per cent in October across the zone, indicating consumer nervousness about the future. Hiking rates at this point would exacerbate the slowdown. It would also serve to drive the euro up. The European central currency has recently hit record highs against the dollar, hurting the key export sector. Concerns are rising of a renewed round of warnings from financial institutions, as the scale of the meltdown in the US subprime mortgage market becomes apparent, along with predictions of noticeable negative effects on the real economy. The ECB last increased rates at its meeting on June 6, hiking its main refinancing rate to 4.00 from 3.75 per cent. Earlier Thursday, the Bank of England cut its key rate by 0.25 percentage points to 5.5 per cent, its first reduction since August 2005. The move came amid rising inflation fears and distinct signs of a slow-down in the housing market as effects of the credit crunch hit the British economy. House prices have seen their sharpest drop since 1995 and there are also signs that consumer confidence is falling.
