Eurozone interest rate held at 1%

Image caption,
The European Central Bank believes inflation will remain moderate in 2011

The European Central Bank (ECB) has kept interest rates in the eurozone on hold at a record low 1% for the 18th month in a row.

Earlier the Bank of England also maintained UK interest rates at 0.5%.

On Wednesday, the US Federal Reserve announced that it would pump a further $600bn (£373bn) into the US economy in a second round of quantitative easing.

But neither the UK nor the European central banks announced extensions to their stimulus programmes.

ECB president Jean-Claude Trichet refused to be drawn on the Fed's action. He said he had "no further comments on what is done by other central banks that have their own responsibility in their own environment".

However, he did say that he was confident the Fed still supports a strong dollar, despite reports that the Fed wanted to weaken the dollar in order to make its exports more competitive.

"I have no indication that would change my trust in the fact that [Fed policymakers]... are not playing the strategy of the weak dollar," he said.

"It is in the interest of the US to have a strong dollar vis-a-vis the other floating currencies."

Mr Trichet also said that the ECB's decision to maintain interest rates was "appropriate", adding that recent data showed that "the underlying momentum of the recovery remains positive" despite prevailing uncertainties.

Inflation rates should remain moderate in 2011, he said.

"In the next few months, inflation rates will hover around current levels before moderating again in the course of next year."

Scaling back

The ECB has previously hinted at allowing temporary support measures to slowly expire rather than offer more stimulus.

When the credit markets seized up during the financial crisis, the ECB introduced a range of cheap bank lending operations to improve banks' access to money.

But in March this year, Mr Trichet said the central bank would begin scaling back some of the measures put in place.

The bank's stance on the economy has been supported by encouraging eurozone data but leaves it at odds with its advanced economy peers, following the Fed's latest move and calls for the Bank of England to restart quantitative easing.

"The ECB is likely to stand on the opposite side of the fence to the Fed and prepare the market for a continued withdrawal of its support measures," said Citigroup economist Juergen Michels.

"Unless the ECB sees a risk of deflation, or there is another really severe intensification of financial market tensions, it is unlikely to change its stance."

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