Athens/Frankfurt - The European Central Bank's 21-head rate- setting council kept interest rates on hold Thursday for the 11th consecutive month with ECB chief Jean-Claude Trichet warning that spiralling oil and food prices were threatening to spark a renewed surge in inflation. Despite a series of rapid-fire US rate cuts and signs of crimping economic growth in the 15-member eurozone, the ECB's governing council left its benchmark refinancing rate unchanged at a six-year high of 4.0 per cent at its meeting, which was held in Athens. The decision was in line with analysts' forecasts.
The build-up to Thursday's meeting has been accompanied by oil prices soaring to a record high just short of 124 dollars a barrel, with Trichet indicating that the ECB was in no rush to cut borrowing costs.
Speaking at his regular monthly press conference following the governing council's meeting, Trichet talked tough about the risks facing consumer prices in the eurozone saying action to curb inflation expectations remained the ECB's "highest priority."
The bank, he insisted, was in a state of "permanent alertness," adding there was "no time for complacency in any respect."
The ECB chief also warned that in the wake of the US subprime mortgage crisis, "the level of uncertainty resulting from the turmoil in financial markets remained unusually high and tensions still persist."
But Trichet was cautiously optimistic about the outlook for global growth saying that despite slowing grow the world economy remained "resilient" as a result of the solid expansion rates in leading emerging economies.
This in turn was also helping to underpin the eurozone's economic performance.
Thursday's ECB meeting coincided with an announcement from the Bank of England that it had also kept its benchmark rates on hold at 5 per cent.
However, unlike the ECB, analysts believe that sinking British housing prices and a steady stream of downbeat economic news could open the way for the Bank of England to press on with its rate- cutting cycle, possibly as early as next month.
At the same time, while the ECB has sat tight on rates throughout the financial turmoil unleashed by the US subprime crisis, the US Federal Reserve has trimmed borrowing costs seven months in a row cutting the cost of money in the world's biggest economy to 2.0 per cent last week.
But although data released last week showed eurozone inflation slipping from 3.6 per cent in March to 3.3 per cent in April, inflation in the currency bloc remains well above the ECB's annual 2- per-cent inflation target.
That said, however, both the ECB and economists are expecting inflation to slow as the year unfolds, which ultimately could help to pave the way for the bank to reduce the cost of money later in the year.
"Looking ahead, the annual inflation rate it likely to remain significantly above 2 per cent in the coming months, moderating only gradually over the course of 2008," said Trichet.
This has lead some analysts to say that the ECB might soon have room to move on monetary policy and could trim borrowing costs later in the year.
In the meantime, the risks of another round of consumer price pressures combined with a high euro have allowed the ECB to buy time on interest rates as it sizes up the economic fallout for the eurozone from rising inflation and slowing growth.
