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ECB leaves rates alone
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November 2, 2000: 9:25 a.m. ET
Central bank leaves borrowing costs at 4.75%; one more hike may be on tap
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LONDON (CNNfn) - The European Central Bank opted Thursday to leave short-term interest rates unchanged, as expected, but economists say one more modest rate rise should be in the offing by the end of the year to quell the inflationary effect of high oil prices and a weak euro.
The ECB, which sets monetary policy for the 11-nation euro zone, held its
minimum bid rate at 4.75 percent at its regular fortnightly meeting Thursday. Last month the ECB raised rates, its sixth hike this year. Higher rates make it more expensive for consumers and companies to borrow money, which tends to ease inflationary pressures by curbing consumption and output.
A Reuters survey of 58 economists prior to the decision showed an 80 percent expectation that rates would not change. However, most expect rates to peak at 5 percent by the end of the year.
"We think there's another rate hike in the pipeline, perhaps in November," said Rainer Guntermann, an economist with Dresdner Kleinwort Benson in Frankfurt. "They raised rates just one month ago and there has been nothing to suggest that things have gotten worse" on the inflation front, he added.
Upward price pressure has been brought to bear on Europe's economies due to the weak euro - which fell to a new low against the U.S. dollar last week - and crude oil prices holding stubbornly above the $30 a barrel level despite a near-global effort by governments to lower prices.
"The ECB's job on tightening is not over yet by a long stretch of the imagination," wrote Bear Stearns economists David Brown and Steve Barrow in note to clients Thursday. They said the euro's rally in recent days against the dollar - after hitting an all-time low last week - is temporary and was spurred by signs of slowdown in the U.S. economy and the threat of another possible ECB intervention to buoy the currency.
A weak currency can cause inflation by driving up the price of imported goods and raw materials. The euro-zone inflation rate stood at 2.8 percent in September - the most recent reading - above the 2-percent threshold the ECB has set as its target.
ECB President Wim Duisenberg said at a news conference on Thursday inflation rates may hover above the targeted level longer than first thought, adding that it may take more than two to four months for the impact of the high oil prices and weak euro to feed through the euro-zone economy.
The euro barely budged after the announcement, trading at 86.38 U.S. cents, compared to 86.09 in late Wednesday in New York trading but up from 85.79 earlier in the day in Europe. 
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European Central Bank
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