The global financial turmoil could last longer and have a broader impact on the eurozone economy than previously expected, the European Central Bank warned yesterday even as it underlined its hardline stance on inflation by holding interest rates at 4%. Financial Times
Comments by Jean-Claude Trichet, ECB president, highlighted the risks and uncertainty the Frankfurtbased institution sees surrounding the eurozone economic outlook. But with inflation at 3.5%, the highest for almost 16 years, his tone after the ECB’s latest interest rate meeting suggested little chance of an early cut in borrowing costs, analysts said.
'It is a central bank particularly uncomfortable with the inflation rate, but there is no way that they can hike rates at the moment, so they stay where they are,' said Erik Nielsen at Goldman Sachs.
So far the ECB has left its main interest rate at 4% since last June – in spite of hefty cuts by the US Federal Reserve. Financial markets continue to believe that the ECB will not cut until September.