Athens - Europe's two leading central banks - the Bank of England and the European Central Bank (ECB) - left rates on hold Thursday amid fears that spiralling oil and food prices were threatening to trigger renewed inflationary pressures. While the Bank of England meeting in London held rates at 5 per cent, the Frankfurt-based ECB holding one of its regular out-of-town meetings in Athens left its benchmark refinancing rate unchanged at a six-year high of 4 per cent.
It was the 11th consecutive month that rates in the 15-member eurozone have been in hold with ECB chief Jean-Claude Trichet indicating that the bank was in no rush to trim rates insisting that curbing inflationary expectations remained the ECB's "highest priority."
The build-up to Thursday's meetings of the Bank of England was accompanied by oil prices surging to a record high just short of 124 dollars a barrel.
Speaking at his regular press conference Thursday, Trichet insisted that the ECB was in a state of "permanent alertness," adding there was "no time for complacency in any respect."
He 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."
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.
This could come possibly as early as next month with another 25-basis points reduction. The Bank of England last trimmed rates in April.
At the same time, while the ECB has sat tight on rates throughout the financial turmoil unleashed by the American 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, its lowest level in four years.
But Trichet was cautiously optimistic about the outlook for global growth saying that despite slowing grow the global 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.
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.
