The Governing Council of the European Central Bank decided to keep the interest rates at 2 % on Thursday. The same day, the Bank of England also announced the decision to keep its key rate unchanged at 4.75%.

Analysts predict the rates are likely to stay at present levels till the second half of 2005 considering the recent surge of the euro that now reached $1.2865, a cent lower than February’s all-time high, and weak economic growth in the 12-nation euro zone. Deutcshe Bank warns that if a 3% rise in the euro exchange rate is continued, the strong euro could hamper exports and slow the economic growth in the euro zone by 0.5%.

In the face of a slow global economy and surging oil prices, the ECB can even be expected to lower the rates.

Although inflation exceeded expectations at 2.5%, the ECB expects the inflation rate to dip below 2% in the next year. Unless the ECB sees second-round inflationary effects triggered by high energy costs and masses of cheap money, it will probably keep the rates at historically low levels in the economic zone where consumer confidence and job growth remain disappointing.