The decision to keep the key rate on hold at 2.75% had been widely expected following last month's hefty half-percentage-point cut.

That move, prompted by mounting fears over the sluggish eurozone economy, followed more than a year of inaction on rates by the European Central Bank, despite cuts enacted by other major central banks.

Europe's economy has shown increasing signs of stagnation, but the ECB has kept rates relatively high to fight inflation, which has remained persistently high.

Inflation outlook

The recent rise in oil prices is likely to have renewed "some upward pressure on consumer prices", ECB president Wim Duisenberg said.

Tax reforms which came into force at the start of the year may also have boosted inflation.

Some balancing of these pressures was set to come from areas such as unprocessed food prices.

Indeed, inflation was set to stabilise at below 2.0% during 2003 - in the absence of an oil price shock - compared with a rate of 2.2% last month, Mr Duisenberg said.

However, analysts said Mr Duisenberg's tone gave little hope of a further cut in eurozone interest rates in the immediate future.

"We judge the current monetary policy stance appropriate to maintain a favourable outlook for price stability in the medium term," Mr Duisenberg said.

UK rates unchanged

Europe is still far from being in an official recession, but its biggest economy, Germany, is teetering on the brink.

Fears of a genuine slowdown have been heightened in recent months by Germany's worsening budget position, which is leading to government spending cuts and, potentially, widespread tax increases.

The Bank of England also said on Thursday it was keeping its benchmark rate on hold, at 4.0%.