ECB leaves interest rates unchanged

The European Central Bank has left interest rates unchanged today at 3.25%, after the successful cash launch of the euro.

The bank's 18-member policy council ignored pleas from the financial community to cut rates and kickstart a sluggish eurozone economy.

It was hoped that the hitch-free introduction of the single currency into European homes, businesses and shops would coincide with a reduction in the cost of borrowing.

But Wim Duisenberg, the president of the ECB, said the bank would need more information on the health of the continent-wide economy before it could sanction another cut in rates.

"All in all, available data remain in line with a recovery of the euro area economy this year, while the timing and strength of this upturn remain uncertain. Continued close monitoring of further incoming information is thus warranted," he said.

Mr Duisenberg said the eurozone economy would remain soft in the early part of the year, but predicted a return in confidence later on in 2002.

"Recent information has confirmed earlier assessments that economic activity in the second half of 2001 was weak and will probably remain weak in early 2002. However, there are signs which indicate that a decline in confidence may have bottomed out," he said.

Analysts said the decision came as no surprise, although the interest rates debate has been overshadowed by the debut of euro notes and coins since January 1.

"I think perhaps people were hoping they would cut rates and help the economy out a bit, but nobody really expected them to... [it] is fully consistent with the signals they've been giving for the past several weeks since the last meeting," said Nigel Anderson, an economist at RBS Financial Markets.

Apart from the health of the single currency, ECB governors must also look at inflation rates, consumer confidence and other economic indicators before deciding to cut rates.

Today's announcement means that ECB interest rates will stay at 3.25% after the bank cut them by a half percentage point on November 8.

But a central bank governor today said he was satisfied with the successful currency changeover in 12 European countries.

"This success proves the euro is really going to change Europe," said Portugal's Vitor Constancio.

The European commission said that by Wednesday 200 million people - two thirds of the euro zone population - had euro coins in their pockets, and 60 million people had euro notes, obtained either from cash machines, bank withdrawals or as change from cash transactions.

On the currency markets, the Euro had slipped further against the pound and the dollar by afternoon trading.

Against the dollar, it fell from $0.9009 to $0.9003, while against the pound it retreated from ?0.6242 to ?0.6232. It continued to rise against the yen, but was unchanged against the Swiss franc.