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ECB holds main interest rates steady

The European Central Bank (ECB) held its main interest rates steady yesterday against a background of rising inflation and slowing growth, shortly after the Bank of England (BoE) did the same.

The benchmark borrowing rate for the now 15-nation single currency zone remained at 4.0 percent as the ECB measured twin threats from a spike in oil and food prices coupled with a banking crisis that followed the collapse of the US subprime housing market.

Of the two issues, inflation was a greater concern to ECB policy makers meeting in Frankfurt, among whom figured for the first time central bank governors from Cyprus and Malta, which adopted the euro on Jan. 1.

"Inflation growth is still the prime worry," ING analyst Peter Vanden Houte said.

In Britain, the BoE held its main interest rate at 5.50 percent after cutting it last month for the first first time in more than two years owing to a dogged global credit squeeze that threatens to derail economic growth.

"After the ECB raised interest rates to a roughly neutral 4.0 percent in June, the strong euro and the lingering turmoil in money and credit markets will likely keep the central bank on hold until September 2008," said Holger Schmieding, senior European economist at Bank of America.

The ECB also held the deposit rate and the marginal lending rate unchanged at 3 percent and 5 percent respectively.
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