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ECB leaves rates on hold
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January 3, 2002: 7:38 a.m. ET
European Central Bank left interest rates at 3.25%, cut expected next month
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FRANKFURT (CNN) - The European Central Bank left interest rates unchanged on Thursday, two days after 300 million eurozone citizens started using the single currency.
"It's felt it's too soon after the introduction of euro notes and coins for any change," Razia Khan, economist at Standard Chartered, told CNN before the decision. "The ECB will not do anything to overshadow that move."
Until now the euro, which made its debut on January 1, 1999, had only been used by the financial markets. Since its introduction the single currency has lost about a quarter of its value against the dollar.
On January 1, 2002, the euro became legal tender in Austria, Belgium, Finland, France, Germany, Greece, Republic of Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Economists polled by Reuters expected the ECB to leave rates unchanged at 3.25 percent at its first meeting after the cash rollout, but a majority saw at least another rate cut, possibly next month.
The ECB, which has cut interest rates four times last year to 3.25 percent, has consistently argued its main mandate is to bring inflation under control. Its target is to keep inflation below 2 percent, a target it missed for the last 18 months.
After eurozone inflation slipped to 2.1 percent in November and Germany, the biggest economy, shrank in the third-quarter, economists expect the ECB has room to trim the cost of borrowing to boost the European economy.
Meanwhile, the U.S. Federal Reserve has cut interest rates 11 times this year to 1.75 to stimulate the world's biggest economy, which is in recession, and the Bank of England has trimmed rates seven times to their lowest in early 40 years
ECB President Wim Duisenberg has made it clear in recent comments to the markets that interest rates were at a right level now to keep a lid on inflation without getting in the way of economic recovery.
But economist still feel there is a need for a rate cut. The ECB cut the 12-nation eurozone's 2020 growth forecast to between 0.7 and 1.7 percent, compared with previous estimates of 2.1 to 3.1 percent.
"With inflation heading below the ECB's target we would not be surprised if the rates committee trimmed rates by about 0.25 percentage points," Khan said. "We certainly expect weaker economic data from the eurozone over the coming months and if the ECB does not cut rates on Thursday it may be behind the curve if it moves in February."
Investors are pinning their hopes on a U.S. recovery later this year and Duisenberg has reiterated that the 12 nation eurozone should turn the corner in the first half of 2002.
"I personally believe we have already reached the bottom," he said in a newspaper interview published on the eve of the euro cash debut. 
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