The European Central Bank held its key rate at 2.5% today and also played down talk of a rise in May, causing the euro to fall gainst the dollar.
The decision to hold the rate steady, after a quarter-point rise a month ago, had been expected, but analysts had also predicted that the bank would signal that a further tweak was likely in May.
The surprise came after the announcement, when ECB President Jean-Claude Trichet said with unusual bluntness this did 'not correspond to ECB thinking'. He also indicated that there might be an increase in June.
Analysts questioned before the ECB decision said that the bank would probably indicate a vigilant trend on rates in order to contain potential inflationary pressures as the euro zone economy showed increasing signs of recovery.
However, Trichet also said the bank could raise its key rates at its June meeting which will take place away from the ECB's Frankfurt headquarters, in Madrid.
He said the ECB would continue to monitor inflationary risks 'very closely' but significantly made no mention of a commitment to 'exercise vigilance' on inflation. A reference to 'vigilance' is generally seen by the market as signifying that the ECB is preparing to raise rates again soon.
The bank raised rates at its last monetary policy meeting on March 2 and has never moved rates at two consecutive sessions. Many economists had predicted a rise in May of 0.25 percentage points.
Today's meeting took place against a backdrop of fears that inflation could flare up as a result of persistently high oil prices and mounting pressure for wage increases as Europe's economy continues to pick up.
Trichet said euro zone growth was 'strengthening and broadening' but that the risks of inflation were still 'on the upside'. Inflation would stay above 2% in the short term, Trichet said.
Recent data in Europe also pointed to a sustained economic upturn. A strong rise in the euro area's purchasing managers' index (PMI) last month, as seen in data released on Monday, underlined the positive outlook.
The PMI data came hot on the heels of buoyant business and investor confidence, particularly in the zone's biggest economy, Germany. The widely watched Ifo business climate index surged to a 15-year high in March, data showed last week.
Most economists predict that euro zone interest rates will reach 3-3.25% by the end of the year.
