The president of the European Central Bank, Jean-Claude Trichet, has dashed hopes of a cut in European interest rates any time soon.
He was speaking after a meeting of the bank's Governing Council which left the ECB's key rate unchanged at 4%, as expected. Mr Trichet gave a firm indication that the bank is likely to keep interest rates unchanged for some to time to come.
Financial commentators had been expecting that the ECB would indicate that a reduction in interest rates was a possibility because Europe's economic growth rate has slowed down. But Mr Trichet insisted that the ECB was not responsible for expectations of an interest rate cut.
He said that the bank's Governing Council was unanimous that the current level of interest rates was appropriate and would help to combat inflation. He also said the bank now expected that the euro zone inflation rate would be higher than previously estimated.
The ECB has raised its 2008 inflation forecast to 2.9% from 2.5%, and for 2009 raised it to 2.1% from 1.8%. Mr Trichet added that maintaining price stability was the bank's main objective and was committed to countering second-round effects, such as big wage rises.
The bank also cut its euro zone growth forecast for 2008 to 1.7% from 2% previously.
The ECB's rates decision came as the euro rose to a fresh all-time high of $1.5378, buoyed in part by the prospect that euro zone interest rates will remain higher for some time while US monetary policy is set to ease further.
The Bank of England also kept its own key interest rate at 5.25% as the British central bank opted for a wait-and-see approach to rising inflation and slowing growth.
Pressure has been growing for a euro zone interest rate cut as the economy of 320 million people has been hit by record oil prices, slumping US activity, financial market turmoil and a soaring euro which could undercut exports.
In the fourth quarter of 2007, euro zone growth fell to 0.4% from 0.7% in the previous quarter, in part owing to a slight contraction in household spending.
The euro has been on a record breaking run for weeks, topping $1.50 on February 26, as dealers sell down the dollar amid concerns about the outlook for the US economy and interest rates.
Dealers said that while the US Federal Reserve has cut interest rates sharply - and promised to do so again - in an effort to get the US economy back on track, the markets are growing worried that the move may not work.
