Eurozone rates stay put amid signs that 'bottom has been reached'

The European Central Bank yesterday sent a strong hint that interest rates for its 12 member countries were unlikely to fall any further.

The ECB decided to keep its main lending rate unchanged at 2.0 per cent in line with market expectations.

Wim Duisenberg, its president, sounded more optimistic than a month ago that the economy would gradually start picking up by the end of this year.

"There are first, very preliminary signs that we have reached the bottom there and that confidence may be returning, at last," Mr Duisenberg said, adding that monetary policy was "on a good track".

"I can make no forecast of how long we will remain on that track, but I would expect it for a considerable time to come."

Yesterday's decision was widely expected following last month's surprise half-point cut and after Mr Duisenberg said last week it was now up to governments to push through reforms to boost growth and employment.

He repeated that message yesterday, saying "other policy-makers also have to assume their responsibilities" and attacked "a lack of ambition in the areas of fiscal and structural reform".

However, Mr Duisenberg, who is expected to stand down in November for his successor, Jean-Claude Trichet, left the door ajar for further rate cuts if necessary.

He said there were a number of downside risks, including macroeconomic imbalances outside the euro area - a reference to the US deficits - and to the scale of adjustment needed by euro-area businesses to boost productivity and profitability.

Norman Williams, European economist at Barclays Capital, pointed out that while Mr Duisenberg mentioned downside risks, he did not mention upside dangers.

He said: "If those downside risks were to materialise, then it is highly likely that the ECB would change its mind and cut rates. That is still a high likelihood, and not changed by what Duisenberg said."

But Glenn Davies, chief economist at Credit Lyonnais, said: "From his use of words there doesn't seem, at the moment, any reason to look for them to cut rates again."

The Bank's governing council does not hold another press conference again until 4 September, which means it is unlikely there will be another change in monetary policy for almost two months.

ECB rates are now lower than they have been in any of the countries using the euro since at least the Second World War. With inflation at 2.0 per cent in June and the refinancing rate at 2.0 per cent, short-term rates are effectively zero.