ECB holds key eurozone interest rate at 4.0

In Britain, the Bank of England (BoE) cut its key interest rate by a quarter of a point to 5.0 percent in response to the global credit squeeze but also to reduce a risk of unduly low inflation in the long term, it said.Â

The ECB has left its benchmark refinancing rate unchanged since June, while the US Federal Reserve has slashed its Fed funds rate from 5.25 to 2.25 percent since September to try and prevent a US recession.

The European bank also kept two other key rates - the deposit rate and the marginal lending rate - unchanged at 3.00 percent and 5.00 percent respectively.

Before the ECB and BoE decisions, the euro had hit an all-time high point of 0.80290 pounds owing to market anticipation regarding the rates, traders said.

The single European currency also set a new record of 1.5913 dollars.

In Frankfurt, attention turned to a press conference by ECB president Jean-Claude Trichet scheduled after the decision at which his remarks were expected to indicate if the bank was edging closer to lowering its main rate in the coming months. The ECB was expected to "keep the door shut for possible rate cuts in the foreseeable future," Commerzbank economist Gavin Friend said in London.

Bank of America senior economist Holger Schmieding told AFP after the ECB decision was announced that Trichet might stress that the banks current policy stance contributed to price stability. "This emphasis on the current policy stance is something which does suggest no change for the time being," Schmieding said.

Trichet and other policy makers at the ECB have said clearly that keeping inflation under control is their priority, as required by the banks statutes.

Eurozone inflation hit a 16-year high point of 3.5 percent in March, way above the banks target of just below 2.0 percent.

ECB officials have also stressed the need to contain expectations of inflation among households and businesses because once people conclude that prices will continue to rise they begin to anticipate the spiral, thereby adding to it.

In March, taking what is known as a hawkish stance, Trichet underscored concern that a spike in the cost of food and energy could provoke generalised increases in wages and other prices.

On Wednesday, oil prices hit a record peak of 112.21 dollars per barrel in New York.

"If Mr. Trichet maintains his recent hawkish tone, a June cut will start to look pretty unlikely," said Jennifer McKeown of Capital Economics.

Schmieding said a recent German public sector wage agreement could encourage the ECB to lock down its lending rate until September at the earliest. "The ECB hawks will want to see clear evidence that this German wage deal remains an outlier," or a move that just brought the wages back to average after a two-year freeze, he said.

The alternative could be further demands by other sectors and by workers in other eurozone countries, which Schmieding said would "make a rate cut before the summer holiday unlikely." He told AFP there would probably "not even be a rate cut debate for the next few months."

Labor strikes for higher pay have increased in many of the European Unions 27 member countries as consumers are squeezed by rising gas, electricity and mortgage bills, and rocketing food prices in staples such as bread, eggs and dairy goods.