European Bank Leaves Key Rate Unchanged

The European Central Bank on Thursday kept its benchmark short-term interest rate at 3.25%, opting against another rate cut at its final meeting of 2001.

But many analysts believe the ECB will continue to ease credit in 2002.

The Bank of England also left its key rate unchanged at 4%.

The ECB and the Bank of England cut their rates a half-point at their early-November meetings, but ECB policymakers said Thursday that most forecasts now call for economic growth to resume in Europe in 2002, implying no urgent need for cheaper credit.

“Economic activity has been weak in the second half of 2001 and will probably remain so” in coming months, ECB President Wim Duisenberg said. But “Europe will see a recovery, albeit gradual, in the course of 2002.”

The ECB’s U.S. counterpart, the Federal Reserve, still is expected to cut its benchmark rate when policymakers meet Tuesday. The Fed’s rate now is 2%, well below the ECB rate.

The ECB cut its rate shortly after the Sept. 11 terrorist attacks, but until then it had been reluctant to lower rates as quickly as the Fed has this year, in part because of higher inflation pressures in Europe. But Duisenberg said Thursday that the ECB expects inflation to fall below 2% in 2002.

Some European business executives said they agreed with the assessment that the economy is poised to turn around. “The third quarter was horrible, the worst in my 21 years at the company, but in October and November business improved,” said Wolf Meyer, chief executive of Leifheit, a maker of kitchen appliances based in Nassau, Germany.

Even so, all but three of 25 economists surveyed by Bloomberg News predict another ECB rate cut by the first week of February.