While leaving all its key rates unchanged, the European Central Bank (ECB) on January 7 welcomed the successful launch of Europe's single currency, and said problems with inter-bank payments systems were no more than teething troubles. The ECB promised to hold interest rates steady for the foreseeable future. European Central Bank President Wim Duisenberg said that while the central bank still faced uncertainties from the world economy, the inflation outlook remained benign and there was no need to change interest rates in the foreseeable future. At the first meeting of its policy-making council since the ECB took control of monetary policy in the Euro currency zone on January 1, the central bank confirmed it would hold its main money market rate, the refinancing rate, at 3%. It also reaffirmed plans to loosen a straitjacket placed on money market interest rates in two weeks' time, on January 21. The ECB said in late December that it would move its marginal lending rate and deposit facility, currently set at 2.75% and 3.25%, to 2% and 4.5% respectively from January 21.

Analysts had expected the ECB to keep rates on hold but a string of weak business sentiment indicators boosted expectations of an interest rate cut some time before the end of the first quarter or early in the second quarter. Mr Duisenberg said that while the Euro zone continued to face uncertainties stemming from the global economic trends, there were no significant upward or downward price pressures in sight. He also said several indicators painted a mixed picture of Euro area economy with industrial confidence, order books and capacity utilisation indicating a weakening and consumer confidence, retail sales and employment suggesting more positive developments. A recent fall in long-term interest rates to record lows and a decline in yields showed financial markets judged Euro zone monetary policy favourably, he said.


Acclaiming the launch of Europe's new single currency as a success, Mr Duisenberg said the monetary union's TARGET gross payments system had passed its test, handling large volumes of transactions relatively problem-free. The ECB said "TARGET" had rapidly become the largest of its kind world-wide and expressed confidence that initial problems with the system would be quickly resolved. "Overall, during the first days of operation, the TARGET system has functioned well," Mr Duisenberg said. "The problems...

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