ECB holds rates steady

The European Central Bank yesterday sought to deliver a confidence boosting business as usual message to financial markets and European consumers by leaving interest rates on hold despite the high level of international uncertainty and slowing European growth.

Consumer and investor confidence were the keys to economic recovery and were more likely to be undermined rather than strengthened by a "panicky" response to the economic impact of the terrorist attacks on the US, Wim Duisenberg, the ECB president, said.

He sought to head off criticism that by leaving rates on hold the bank was doing too little to help struggling economies within the 12 nation eurozone.

The bank had cut interest rates by a quarter of a percentage point at the end of August and by half a percentage point on September 17 - the latter in a concerted response with the US Federal Reserve to the terrorist atrocities.

"Everyone seems to have forgotten August 30 and Sep tember 17," he said. "The most crucial challenge that faces the authorities, all authorities, today and in the near future is to restore confidence among consumers and investors. In our opinion to move [interest rates] so soon after the previous move ... would fail to do the trick.

"We think creating an environment of stable prices through a stability orientated monetary policy in a forward looking manner is the best contribution."

Mr Duisenberg said the ECB had already been considering a rate cut before the attacks and he speculated that had they not taken place the ECB would still have cut borrowing costs, though later and by a small amount.

The bank, he said, remained ready to react flexibly to "new events and new information" but he admitted that the ECB had only limited room for manoeuvre.

Analysts said the ECB was deliberately leaving the way open for further rate cuts if it felt they were necessary. "The broad message is that rates can still come down but not very quickly," said Nigel Anderson, of Royal Bank of Scotland.