FRANKFURT (AFP) — The European Central Bank is expected to leave interest rates on hold at 4.0 percent Thursday, taking a cautious line in face of the twin risks of rising inflation and slower growth, analysts say.
"An ECB on hold on Thursday is practically a done deal in our view," Bank of American senior analyst Gilles Moec said in a research note.
Even though the US Federal Reserve is expected to cut its key Fed Funds rate next week from the current level of 4.50 percent, "with inflation now at 3.0 percent, the ECB has even more reasons to resist" calls for a similar move, Moec said.
"There is very wide agreement that the ECB will stay pat until the end of the year," UBS analysts wrote.
In Britain, the Bank of England is also expected to leave its key lending rate steady at 5.75 percent on Thursday although a series of very poor data Wednesday sparked some speculation the central bank could announce a cut.
Many feel the ECB rate hike cycle, which began in December 2005, has peaked out and that the next step, though perhaps not for some time, will be down.
A poll of 32 analysts by Thomson Financial News and AFP found all expected no change in the ECB's refinance rate.
While inflation continues to climb higher, largely driven by rising oil and food prices, the central bank has had to acknowledge weakening economic activity and the negative effects of the dollar's fall against the euro.
The ECB is also to release forecasts for growth and inflation this year and next, along with a preliminary inflation forecast for 2009.
Growth estimates for 2008 will likely be revised down from the previous figure of 2.3 percent, while the inflation forecast is almost certain to climb from the current 2.0 percent.
In November, inflation shot up to a six-year high of 3.0 percent in the eurozone, a region of 320 million people that accounts for roughly 15 percent of global gross domestic product.
"The new ECB macroeconomic projections may provide the (ECB) Governing Council the opportunity to signal its intention to stay on hold well into 2008," Moec said.
But with inflation already well above the central bank's target of close to but below 2.0 percent, ECB president Jean-Claude Trichet was expected to focus on price increases and at least keep open the option of a future rate increase.
"With the headline rate likely to head even higher over the coming months, the ECB will remain in a state of high alert for signs of a wider pick-up in price pressures," according to Jonathan Loynes at Capital Economics.
The bank's decision comes a day after European Union data showed that retail sales were weaker than expected in October, as German shoppers in particular reined in their spending.
The figures suggested that "households are now starting to react negatively to the current steep spike in energy and food prices," Moec said.
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