ECB leaves interest rates on hold

The ECB had earlier been expected to raise rates The European Central Bank (ECB) has opted to keep interest rates on hold at 4%, as jitters continue to unsettle markets worldwide.The widely-expected decision in the 13-member area comes as central banks try to prevent market turmoil from turning into a bigger financial crisis. Before the recent volatility, caused by problems in the US housing market, rates had been set to rise to 4.25%. Earlier on Thursday, the Bank of England kept UK rates on hold at 5.75%.

Uncertainty

Central banks in Australia and Canada also decided to keep rates on hold this week.

Explaining the background to the unanimous decision, ECB president Jean-Claude Trichet said the fundamentals of the eurozone economy remained strong but the recent turmoil on financial markets meant policymakers needed to proceed with caution.

“The financial market volatility and reappraisal of risk in recent weeks have led to an increase in uncertainty,” he said.

“Given this high level of uncertainty, it is appropriate to gather additional information and examine new data before deriving further conclusions for monetary policy.”

Mr Trichet said growth across the eurozone had slowed during the second quarter but that key indicators such as unemployment remained “favourable”.