The European Central Bank left interest rates unchanged on Thursday as it tried to balance the competing demands of record inflation and slowing growth in the eurozone.

ECB watchers had expected the decision by the ECB's governing council to leave its main lending rate at 4.25 per cent after agreeing a quarter-point rise in early July.

Julian Callow at Barclays Capital said he expected the ECB again to warn of "upside risks to price stabilty" at a press conference scheduled for 1.30 pm London time.

"That said, we also expect ... [ECB president Jean-Claude] Trichet will express a similar sentiment to that ... a month ago: "We have no bias'" toward rate increases.

High oil prices pushed eurozone consumer-price rises to a record 4.1 per cent last month, but economic inducators have also begun to signal rapid economic slowdown.

The ECB aims to keep inflation just below 2 per cent, at which it deems prices to be stable. But it has shied from saying whether inflation or growth are a bigger headache.

Business sentiment and manufacturing activity betrayed strong declines last month, even with recently robust Germany, the region’s largest economy, bracing for gloom.

Continued at FT.com

Goldmau.com comment:

With the European countries' economies shrunk along with the U.S.'s and both the financial market and labor market remain lethargic; it warrants an interest rate hold or even cut view by the ECB. While high oil price warrants a rate increase, with the current decline in oil price; for now the rate will be in a holding pattern unless oil takes out the $150 mark. With that in mind, there will be no hikes on the near horizon.

Commentary courtesy David Cai, Goldmau.com analyst.

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