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ECB keeps rates frozen
July 19, 2001: 7:40 a.m. ET

European Central Bank holds interest rates at 4.5 percent
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LONDON (CNN) - The European Central Bank announced on Thursday it is keeping its key interest rate steady at 4.5 percent.

The move had been widely anticipated after the central bank's president, Wim Duisenberg, recently said the ECB believed its rates were "appropriate for some time to come", despite mounting evidence of a euro-zone economic slowdown.

John Butler of investment bank DKW told CNN: "It was unlikely that we would see dramatic action from the ECB in cutting rates such as we've seen in the United States."

"The economic slowdown in the euro zone has not been as rapid as that in the U.S., so Europe's central bank can afford to be more cautious."

Inflation figures released on Wednesday by Eurostat, the European Union's statistics office, showed the rate of consumer price rises in the region slowed year-on-year in June for the first time in five months.

Consumer prices rose 3 percent from a year ago, slowing from 3.4 percent in May.

Joanne Collins, an economist at Daiwa SCBC Europe, told CNN: "The fundamentals show that growth is slowing and inflation has peaked and it is on the way down so we expect a cut before the ECB's summer break."

The ECB is coming under increasing pressure to reduce rates as it expects growth to fall below 2.5 percent this year from a 10-year high of 3.4 percent in 2000, as the global slowdown reduces demand for European goods and services.

Although the news would have made it easier for the ECB to reduce borrowing costs, thus giving the euro zone a boost by making credit cheaper for companies to invest and for consumers to spend, many analysts believed it would not introduce a cut now, but will do during the next three months.

Many believe that although the inflation figures are a good sign, the bank will want to see at least another month of slowing price rises.

The ECB has kept its key rate at 4.50 percent since its quarter-point cut on May 10. graphic