Leaving euro zone interest rates unchanged today, European Central Bank President Jean-Claude Trichet left the door open for further increases, saying that the bank's monetary policy remained 'on the accommodative side'.
The ECB's interest rates "still remain on accommodative side," Trichet said after the bank held its benchmark "refi" refinancing rate steady at 4%.
And the ECB chief promised that the bank, known as the guardian of the euro, would act 'in a firm and timely manner' to ensure price stability in the 13-country zone.
The European Central Bank today cut its eurozone growth forecast for 2007 to 2.5% from 2.6% previously, but it maintained its forecast for eurozone growth next year at 2.3%.
The ECB said it had maintained its forecasts for inflation in the 13-country eurozone for this year and next at 2%.
The central bank also held its two other key rates - the deposit rate and the marginal lending rate - unchanged at 3% and 5% respectively.
The Council had signalled that a increase of a quarter of one percent was very likely after it met last month.
However, continued unprecedented turmoil in the international money markets, that was kicked off by concerns over mortgage defaults in the United States, has caused the bank to reassess the situation.
The ECB is seeking to manage liquidity problems linked to the US mortgage market without losing sight of potential inflation dangers.
Bank of Ireland's David Tilson believes that we have reached the peak of the rate increases.
'In reality, rates are on hold albeit with a tightening bias. However, it is my view that the ECB is now at the end of the rate hike cycle and we have seen the last of the interest rate increases', he said.
Meanwhile, the AIB Economic Research Unit said in a research note that while the ECB left rates on hold today, there remains a possibility that rates may be hiked again before they peak.
AIB said that the negative impact on affordability of higher interest rates is now being counteracted by falling house prices, although affordability appears to have already stabilised in recent months and could improve over the next 18 months.
The bank said that the sharp contraction in construction activity should result in a marked shift in the supply/demand balance and if there is an improvement in affordability this could prove a turning point for the market, though it could take a while.
Economist with IIB bank, Austin Hughes, said the ECB didn't indicate that the rate rise signalled in August was simply postponed for a month or two; it indicated that the current uncertainty would cause it to take some time to deliberate whether a further rate rise is necessary.
'The guarded tone of Mr. Trichet today suggests that any ECB policy change will be delayed until an expected easing in US interest rates and signs of softer euro zone economic activity mean it is no longer necessary to raise rates further', he said.
The decision by the ECB not to implement the rate rise it had signalled a month ago means a monthly saving of around €35 per month to an Irish borrower taking out an average mortgage of around €250K, he said.
He said financial markets are now indicating little risk of a further rise and a cut in US interest rates later this month may encourage hopes for lower euro area rates during 2008.
A painful sequence of interest rate increases has been the key driver of a sharp weakening in confidence in the Irish economy as a whole and the housing market in particular, he said.
'So, a notably less threatening outlook for borrowing costs should mean that some of the gloomier forecasts for activity and employment in the Irish economy in the coming year will prove too pessimistic'.
