Rising inflation forced Europe's two leading central banks - the European Central Bank and the Bank of England - to leave rates on hold Thursday, according to dpa. But while the ECB held rates at 4.0 per cent and the Bank of England left borrowing costs on hold at 5.25 per cent, analysts believe that slowing growth and a brittle global economic mood could force both banks to trim the cost of money in the coming months. For the moment, however, renewed inflationary pressures fuelled by rising energy and food costs are making it difficult for both banks to mount a case for lower rates with the ECB releasing new forecasts revising up the outlook for inflation and cutting the economic growth prospects. At his regular monthly press conference Thursday, ECB chief Jean- Claude Trichet insisted that inflation remained the top priority of the bank's 21-head rate-setting council, indicating that it was in no rush to trim rates to help underpin economic confidence. "We emphasise that the firm anchoring of medium to longer-term inflation expectations is of the highest priority to the governing council," Trichet told reporters. "We believe that the current monetary policy stance will contribute to achieving this objective," he said. But the ECB chief also warned that "high uncertainty" was looming large over the economic outlook as a result of the financial market turmoil unleashed by the US mortgage sector market crisis. However, Trichet's tough talk on inflation resulted in the euro climbing to an all-time high with the common currency edging its way towards 1.54 against the dollar as he spoke during the press conference. Setting out the ECB's new so-called staff growth and inflation projections, Trichet told reporters the council believes "the risks to inflation are on the upside." The ECB staff projections show inflation coming in again above the bank's 2.0 per cent target in 2009 to average 2.1 per cent compared to a previous forecast in December of 1.8 per cent. Inflation should hit 2.9 per cent this year, the latest staff projections show. The previous estimate was 2.5 per cent. Growth is forecast to average 1.7 per cent this year and 1.8 per cent in 2009. In December, the staff forecasts projected growth averaging 2.0 per cent this year and 2.1 per cent in 2009. But many analysts believe that the ECB will be forced to cut rates possibly to 3.5 per cent by the end of the year in a bid to shore up economic confidence in the face of fears of a global slump triggered by the US housing market crisis. Financial markets are expecting even deeper rate cuts as the ECB follows the lead of other major central banks, notably the US Federal Reserve, which has launched a series of bold steps towards slashing the cost of money in the world's biggest economy. The Fed has delivered a total of 225 basis points since September to 3.0 per cent. The Bank of England decision to leave borrowing costs unchanged Thursday followed a series of rate cuts by the London-based central bank in recent months including a 25-basis points cut in February. But high inflation in Britain is also likely to make it difficult for the Bank of England to press on with its rate-cutting cycle. Moreover, the Bank of England's problems in dealing with rising consumer prices are being exacerbated by a weak pound which is contributing to inflationary pressures in Britain. The UK central bank expects inflation to top 3.0 per cent this - well about its 2.0 per cent target. Nevertheless, analysts are forecasting that UK monetary officials will deliver further cuts this year trimming rates to 4.5 per cent by the end of the year amid slowing growth and a weaker housing market. The Bank of England did not hold a press conference Thursday. Eurozone interest rates have been on hold since June last year with the ECB forced to abandon plans to raise borrowing costs in September in the face of the global financial market turmoil unleashed by the upheaval in the US mortgage sector. The rise in the common currency could help to give the ECB some room to manoeuvre on rates with the currency's strength resulting in tighter monetary conditions in the eurozone. But with annual inflation in the 15-member eurozone levelling off at 3.2 per cent in February, well above the ECB's 2.0 per cent target and the highest since the euro's launch in 1999, the ECB is unlikely to move quickly to flag plans to begin reducing borrowing costs. This is particularly the case as oil prices soared to a record high of more than 104 dollars a barrel Thursday while ECB council members were gathering in Frankfurt for their meeting. However, European finance ministers joined business leaders this week in worrying about the strength of the common currency amid fears that it could undercut the currency bloc's key export machine.
