Any evidence of a slight overshoot in wage agreements in Germany following strikes would certainly put the ECB on the back foot

Guillaume Menuet, 4cast

Speaking at a news conference after the decision was announced, bank president Wim Duisenberg said the eurozone's economic outlook remained "subject to uncertainties" while prospects for price stability were less favourable than at the end of last year.

He said the uncertainties included the future direction of oil prices and the US current account deficit, which he said was a risk to the world economy and "over time... unsustainable".

Balanced

The decision not to alter rates this month had been widely predicted by economists.

"There is not yet a need for interest rate hikes. Interest rate policy is still balanced," said David Kohl, an economist at Bank Julius Baer.

However, many are predicting that rates will rise before the end of this year.

Guillaume Menuet of 4cast in London said strikes in Germany could be one factor leading the ECB to consider rate rises in coming months.

"He [Wim Duisenberg] is slightly more concerned about inflationary expectations so I suspect that any evidence of a slight overshoot in wage agreements in Germany, in particular following the result of the strikes, would certainly put the ECB on the back foot and probably force them to move before the end of the year."

The euro remained steady against the dollar shortly after the rate decision was announced.

Referring to the euro's recent rise to six-month highs against the dollar, Mr Duisenberg said: "It is more a dollar weakness than a euro strength."

Swiss cut

It was the last appearance at an ECB post-rate setting news conference of Christian Noyer, the bank's French number two, who is being replaced by Greek Lucas Papademos.

Central banks in many industrialised countries have signalled the round of rate cutting - intended to stimulate struggling economies - has come to an end.

However, Switzerland's central bank on Thursday cut its rates by half a percentage point.