3 August 2005, 17:39  ECB Unlikely to Mollify Its Critics

The European Central Bank is expected to stand firm this week, keeping its benchmark interest rate unchanged at 2 percent despite calls for a cut from some nations that use the euro as they hope to spark their sluggish economies. The bank's Governing Council, which meets Thursday by teleconference, has given no indication if it plans to move the rate from where it has been since June 2003. That's not stopped politicians in Germany, France, Italy and elsewhere from urging a reduction, to help spur more lending and, by extension, their own economies. The Bank of England, which meets this week as well, is also under pressure to cut its key interest rate, which has stood at 4.75 percent since August 2004. But the ECB is keeping a close eye on inflation. Since 2000, the average inflation rate throughout the entire euro zone has been above 2 percent, the bank's official target. But in countries like Greece, Portugal and Germany, which have been overstepping EU-mandated limits on budget deficits, new taxes are being introduced to boost their own economies and plug gaps in their budgets. That, said Peter Morici, an economist and business professor at the University of Maryland, has the potential to boost inflation further and, in the end, may force the bank to raise interest rates to keep that inflation from increasing.

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