ECB leaves rates unchanged on oil fears

THE European Central Bank left interest rates on hold yesterday over fears that soaring oil prices could fuel inflation and damage growth in the eurozone.

The ECB’s main lending rate was left at 2%, a 60-year low. No change is expected until the end of this year or early in 2005 depending on the outlook for oil prices.

After yesterday’s decision, the ECB president Jean-Claude Trichet said the surge in oil prices this year has caused great uncertainty for the European economy, which has only recently begun to show signs of picking up after three years in the doldrums.

“If oil remains at the present level, we will have an impact on global growth which will certainly not be negligible, a direct impact on global inflation which will also not be negligible,” Mr Trichet said.

“It is extremely important that we prevent the secondary effects of this oil shock.

“We have called upon oil producers to be as responsible as possible and also we have also called upon the consumer countries to embark on energy savings as part of the important of the overall system.” Despite the threat from oil prices, the ECB expected the recent improvements in the European economy to continue.

“The growth momentum seen in the euro area in the first half of 2004 should be broadly maintained in the coming quarters.”

He said high oil prices have had a visible impact on the inflation rate this year. However, the risk to a further spike to inflation “seems to be contained”.

Separately yesterday, the Bank of England Monetary Policy Committee left British interest rates on hold at 4.75%. A further hike is expected before year end.