(Economic) indicators increasingly point to improvements in economic conditions

ECB President Wim Duisenberg

The decision was widely expected by analysts, many of whom now think that the next rate move will be upwards.

The ECB cut rates four times last year as it sought to protect the eurozone economy from the effects of the global economic slowdown.

The last cut was in November, and since then the Bank has resisted calls for further cuts, saying that the eurozone economy is set to recover during the coming year.

Recovery prospects

ECB President Wim Duisenberg said Thursday's decision to leave rates was based on recent encouraging growth data from both the eurozone and the global economy.

"(Economic) indicators increasingly point to improvements in economic conditions," he told reporters.

"While the strength of the recovery remains undertain, there are good reasons to expect a return of economic growth to levels in line with potential towards the end of the year."

Recent surveys have backed the ECB's analysis of growth prospects, with the eurozone's service and manufacturing sectors showing signs of an upturn.

"In the current situation it is a right decision, another rate cut would be wrong," said Stephan Rieke, an economist at BHF Bank in Frankfurt.

"We have some signs of a recovery in the euro zone and the United States."

Earlier on Thursday the Bank of England's Monetary Policy Committee also left its key lending rate unchanged at 4%.

Pay rise caution

Many observers now expect the ECB to raise interest rates by the end of the year as the recovery gains momentum.

Much will depend on what happens to inflation within the eurozone, which the ECB aims to keep below 2%.

After jumping to 2.7% in January, preliminary data has shown February's inflation figure dropping back to 2.5%.

And the ECB has indicated that it expects inflation to continue falling back towards 2%, attributing January's increase to a seasonal increase in food prices.

But Mr Duisenberg warned on Thursday that while this year's eurozone inflation outlook is benign, long-term price stability depends on workers agreeing to moderate wage increases.

"There is some cause for concern with regard to ongoing wage moderation," he said.