ECB holds rates at 4%

The European Central Bank's (ECB) rate-setting board voted on Thursday to keep rates at 4%, the fifth rate hold in a row.

Jean-Claude Trichet, the president of the ECB, said that the rise inflation in October to 2.6%, way above the central bank's target of just below 2%, "fully confirms that the outlook for price stability over the medium term is subject to upside risks." But he said that the continued uncertainty in financial market "warrants a thorough examination of additional information before drawing further conclusions for monetary policy."

Trichet predicted that inflation would stay above target for a number of months and that the ECB must be "extraordinarily alert on second-round effects", but said it would moderate during 2008.

In spite of higher inflation, Marc Ostwald, an economist at Insinger de Beaufort, a bank, said that Trichet's tone was "little changed from October" and that the rise in inflation did nothing to "materially change the uncertain outlook for rates."

Jose Alzola, an economist at Citigroup, agreed: "The post-meeting statement was almost a carbon copy of that of last month," he said.

"The ECB's position could be summarised as a mild tightening bias and, in particular, a special monitoring of inflation expectations in coming months. But there is no indication of a near-term rate hike at all," Alzola added.

Trichet failed mention the weak dollar, which has led to political pressure on the ECB to cut rates, but reiterated his request for emerging market currencies to appreciate.

To read Trichet's statement, click here