Duisenberg believes conditions are right for economic growth as rates stay at 3.25%

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The European Central Bank left interest rates unchanged yesterday, saying they were at the right level to allow the economy in the 12-nation eurozone to recover next year while ensuring inflation would drop safely below the 2 per cent target.

The ECB left its benchmark minimum bid rate at 3.25 per cent, after cutting rates by a total of 150 basis points this year. Its last half-point cut on 8 November brought eurozone interest rates to the lowest level since February 2000.

Wim Duisenberg, president of the ECB, said data released since the last rate cut were in line with the bank's expectations.

"Conditions are there for economic growth to improve in the course of 2002. Financing conditions in the euro area are favourable," the ECB chief said.

"The information which has become available since our meeting on 8 November confirmed our expectations and also the forward-looking decisions taken over the past few months," he said. "We continue to consider the current level of key rates as appropriate."

The decision was expected by financial markets, but means no early Christmas gift for eurozone governments, squeezed between the tight fiscal corset of the monetary union and daily reports of job cuts at European companies.

Economists said the traditionally cautious central bank would want to see more evidence that past rate cuts were enough to pull the 12-nation bloc back from the brink of recession. They also believe the ECB would like to see the successful launch of euro coins and notes before easing rates again.

"Looking from the economic point of view, the ECB could have cut rates especially after weak German manufacturing orders," said Michael Schubert, an economist at Commerzbank in Frankfurt.

The euro and European stocks barely blinked at the widely expected no-change decision, that follows a similar step by the Bank of England, which left interest rates steady at 4.0 per cent on Wednesday.

Some economists have accused the ECB of persistently underestimating the threat of recession for the eurozone economy and contrast its caution with the bold monetary easing by the US Federal Reserve.

The Fed has cut rates 10 times this year, bringing the benchmark rate to 2.0 per cent, its lowest level in 40 years.

Economists believe falling eurozone headline inflation, quickly approaching the ECB's 2 per cent ceiling, gives the bank leeway to trim borrowing costs further in January or February.

Close to a million job cuts have been announced worldwide in the past few months as companies responded to the sharp US downturn and the knock-on effect in Europe.