Frankfurt - The European Central Bank left eurozone interest rates unchanged again on Thursday, with ECB president Jean-Claude Trichet afterwards forecasting an economic recovery in the euro area "at a gradual pace" next year. But he said the outcome "remains subject to high uncertainty" and the future risks included "renewed increases in oil and other commodity prices."
The decision to keep euro borrowing costs on hold was in line with analysts' forecasts. The key euro interest rate has been at an historic low of 1 per cent since May.
"The euro area is expected to recover at a gradual pace in 2010," Trichet told a news conference. He said developments since ECB governors last met last month had confirmed their expectations.
The developments had confirmed their assessment of low inflationary pressure, he said. Inflation expectations in the medium to long term "remain firmly anchored," he added.
Trichet issued an apparent warning to Chancellor Angela Merkel's new government in Germany, the zone's biggest nation, over its plans to cut income and sales taxes.
"Tax cuts should only be considered over the medium term when countries have greater room for manoeuvre," he said.
The ECB governors ended their talks in Frankfurt only hours after the Bank of England (BoE) had left sterling interest rates unchanged at 0.5 per cent while deciding to pump an extra 25 billion pounds (41 billion dollars) into the British economy.
The economy in the 16 nations that use the euro currency has shown some signs of picking up, but economists said it was plainly too early to shift rates higher since this could choke off a recovery and there was currently very little risk of inflation.
Analysts have suggested the Frankfurt-based ECB may wait until the second half of next year before rates go back into climb mode.
Dollar rates are also at an historic low, close to zero. The US Federal Reserve said Wednesday it was leaving them there. US economic conditions had "continued to pick up" since its last meeting in September but were likely to "remain weak for a time."
