ECB holds key rate steady
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October 19, 2000: 10:36 a.m. ET
Euro-zone monetary chiefs hold line at 4.75% after hiking rate two weeks ago
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LONDON (CNNfn) - The European Central Bank left its key interest rate unchanged at 4.75 percent Thursday, as expected, deciding the weakness of the euro and high oil prices didn't pose enough of an inflationary threat to the economy of the euro zone to justify another rate increase yet.
Many economists expected the bank to leave its short-term rate target untouched, just two weeks after the ECB unexpectedly lifted rates by a quarter percentage point.
"Oil prices and exchange rates remain two important considerations," ECB President Wim Duisenberg said at a press conference in Paris, where the panel met Thursday.
The troubled euro is hovering near its all-time low against the U.S. dollar, despite coordinated market intervention led by the ECB last month. Some analysts have called for the ECB to again step into the currency market to bolster the euro.
Shortly after the decision was announced, the euro was fetching 84.32 U.S. cents, after dropping to a record low of 83.24 cents in New York on Wednesday.
Duisenberg has this week endured one of the most tempestuous weeks in his short tenure. He has faced criticism from many quarters for breaking with precedent in granting an interview with The Times of London in which he seemed to indicate he wouldn't recommend a new round of international central bank support for the currency.
The president's comments in the newspaper interview dragged the euro down to record-low territory against the dollar.
"I'm not going to answer any questions relating to that recent interview," Duisenberg said Thursday, adding that he will continue to give interviews, however.
Earlier this week, the ECB was forced to deny speculation Duisenberg was poised to resign, calling such talk "nonsense." On Tuesday, Italian Labor Minister Cesare Silva slammed Duisenberg's management of the euro policy as "superficial" and various newspapers have also criticized the ECB chief.
At the news conference, Duisenberg said he believed that he is doing a good job and pointedly responded "No" when asked whether he had been advised to resign.
Jean-Claude Trichet, president of the Banque de France and the presumptive successor to Duisenberg, told the news conference the 17-member interest-rate setting body is "unanimously united behind its president".
Rebound for euro foreseen
The economic backdrop in Europe has become increasingly volatile in recent months. Consumer price inflation in the 11-nation euro zone jumped to 2.8 percent last month, up from 2.3 percent in August and above the panel's medium-term target of 2 percent.
Meanwhile, oil prices have rebounded toward 10-year highs following a spate of violence between Israelis and Palestinians and a terrorist attack against a U.S. warship in Yemen. Brent crude oil for December delivery was up 27 cents at $31.37 a barrel Thursday.
Since the last ECB meeting on Oct. 5, "Energy prices developments have had a strong influence on inflation rates," said Duisenberg. However he said the rise in prices "did not come as a surprise" and was factored into the ECB's thinking when it opted to raise rates at that meeting.
The ECB chief added continued high oil prices, which for now seem to be having a temporary effect on inflation, could filter through into the economy and eventually have a permanent impact.
Nonetheless, Duisenberg reiterated his belief the euro-zone economy remains healthy: "Real [gross domestic product] has proved to be very strong." He also said the euro is undervalued, adding that "there will be a moment when it will be corrected."
The ECB's rate decision came shortly before Germany's highly regarded Ifo Institute reported that business confidence in Europe's biggest economy fell for the fourth straight month in September, to a level lower than economists had expected.
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European Central Bank
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