ECB joins BOE in holding rates

April 4, 2002 Posted: 7:02 AM EST

Bank of England cut rates six times last year in an effort to bolster the economy

LONDON, England - The European Central Bank and the Bank of England left interest rates unchanged on Thursday amid signs that an economic recovery is still fragile and the threat of inflation is minimal.

The ECB, which cut its key lending rate four times in 2001, kept its rate at 3.25 percent. The BoE held its benchmark rate at 4 percent -- its lowest level in 37 years -- after reducing it seven times last year.

Both were part of concerted effort by major central banks to lower rates to help kick start a sluggish global economy. However, Thursday marks the fifth month in a row that the ECB and BoE have kept rates unchanged.

Economists do not expect the ECB or BoE to alter their monetary policies and begin raising rates for at least a few more months, despite signs of economic recovery in Europe and the United States.

European Central Bank has left rates unchanged for five months

"If improvement abroad continues at the current pace, it will only be a matter of time until rates rise. We are pencilling in the first hike in June," David Page, an economist at Investec, told Reuters.

Inflation -- the prime measure of monetary performance -- has remained under control in the UK and the 12-nation eurozone.

In the UK, the rate of inflation is running at 2.2 percent, well below the BoE's target of 2.5 percent. Eurozone inflation is around 2.5 percent, above the ECB's comfort zone of 2 percent, pushed higher mainly by recent oil price hikes.

Still, the eurozone's economic climate remains bright. The European Commission's main index of economic sentiment rose for the fourth straight month in March to 99.5 -- the highest level since September -- from 99.3 the previous month.

Meanwhile, the Reuters Eurozone Purchasing Managers' Index rose for the fifth month running to hit the critical 50 line that divides shrinkage from growth, showing manufacturing activity has stabilised after 11 months of shrinkage.

"The ECB doesn't want to take any risks with the recovery by hiking (rates) unnecessarily soon," Norman Williams, an economist at Barclay's Capital.

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