ECB holds rates, odds of speedy cut seen lower

By Sakari Suoninen

FRANKFURT (Reuters) - The European Central Bank said it left interest rates unchanged at 4 percent on Thursday to help the fight against inflation, though it unveiled higher consumer price forecasts for this year and next.

ECB staff also cut forecasts for euro zone growth but the bank's firm focus on price risks prompted analysts to push back expectations for a speedy cut to interest rates and sent the euro to a new record high against the U.S. dollar.

ECB President Jean-Claude Trichet promised the central bank would do everything necessary to keep inflation in check, although he also said economic uncertainty was unusually high.

"We had absolutely no call for either decreasing rates or increasing rates, we were unanimous," Trichet told a news conference after holding rates for the ninth month in a row.

"We believe that the current monetary policy steps will ... achieve our objective of medium term price stability and solid anchoring of inflation expectations."

Analysts said Trichet's comments raised the odds of an extended pause at the current level as the ECB faces competing pressures from slowing growth and record high inflation.

"Mr. Trichet does not sound like a central banker who may be about to cut interest rates," CIBC World Markets economist Audrey Childe-Freeman said. "The policy of wait and see is here to stay for a while longer."

Before the rate decision investors had bet on rates sinking to 3.25 percent by year-end, but Trichet distanced himself from these expectations.